Municipal elections are just around the corner, and they're going to be a big deal - not just because voters will select a mayor, but because at least one measure to raise taxes is likely to be on the ballot. Still to be determined is which one(s). City Council President Herb Wesson has been pushing a half-cent increase in the sales tax to 9.25 percent, with the added revenue to be used to pare down the city's huge budget deficit. The proposed increase is being assessed by outside analysts, but several council members seem interested. A higher sales tax could eliminate the need for targeted increases (earlier proposals had higher tax rates for parking lot operators and real estate buyers and sellers). It also eases the pressure on city officials to lower retirement benefits, a politically hazardous move given the influence of public unions. The problem is that at 9.25 percent, L.A. would become one of the highest taxed cities in the state - higher than Beverly Hills, Burbank, and Long Beach. From this week's Business Update on KPCC:
Steve Julian: LA has a bad reputation in that sense.
Lacter: It's rated as one of the most unfriendly cities to do business in, and the concern is that the city will be at a disadvantage next to lower-taxed locations. That's not such a big deal if you're buying a loaf of bread, but a $30,000 car is something else. Now, the council has been considering other tax increases to put on the ballot - one that would raise taxes for parking lot operators and one for real estate sales. That, of course, has all the parking lot owners and real estate agents up in arms about having to shoulder the costs of closing the deficit.
Julian: That's why Wesson's proposal might be seen as attractive - no one group gets singled out.
Lacter: Yes, everybody's subject to the sales tax. But that's going to be a tough sell. Mayor Villaraigosa says he won't support the plan unless the council also approved cost-cutting measures he has supported, such as privatizing the city zoo and the Convention Center. The basic problem Steve, as it's been true for several years now, is that the city of L.A. has way too much money going out - a lot of it in health and retirement benefits - and not enough money coming in through tax revenues.
Julian: Former Mayor Dick Riordan has pushing his own ideas to help reduce the deficit by having a measure on the May ballot... explain that, if you would.
Lacter: It would do away with traditional pensions for new hires and replace them with a 401(k) system that would be less costly to the city. In addition, current employees would contribute an amount equal or greater to what the city shells out. And pay raises would be excluded from the amount used to determine retirement benefits. So, it's a big deal. Riordan has been a critic of the current pension system, and he's warned that the city might be forced into bankruptcy. The unions aren't too happy with Riordan's plan, and they're hoping to discourage voters from signing petitions to get it on the ballot at all (he needs almost 250,000 signatures by the end of the year).
*Eric Rose, a partner with the consulting firm Englander, Knabe & Allen, takes issue with Riordan's claim that switching to a 401(k) system will save the city money. One of Rose's clients is the Los Angeles Police Protective League.
Riordan is well aware that closing the plan will immediately lead to substantially increased costs for pension plans. Potential savings, if they exist, will not appear for many years if not decades. Instead, the Riordan plan simply (and deliberately) passes the costs of the current pension plan on to our children and grandchildren. In the last 18 months, nine separate states and New York City examined and rejected closing their respective defined benefit pension systems because closing the pension system would be more costly than continuing with the existing pension system. That includes conservative states like Texas.