Mayor presents healthier budget outlook that may assume too much*

cityhall3.jpgNo furloughs, no layoffs, more tree trimming and sidewalk repair, seven-day-a-week hours at the Central Library - the budget plan proposed by Mayor Villaraigosa actually includes a fair amount of spending, thanks to years of cost-cutting and a slowly rebounding economy. (Here's the document.) Any budget, of course, is based on a set of assumptions about how much money will be coming in and how much will be going out. The 2013-14 budget assumes that revenue growth will be a lot stronger than in recent years, and that the extra revenue, along salary freezes and others cuts, will handle the anticipated shortfall. This is not just wishful thinking - revenue for the 2012-2013 fiscal year has been revised upward, with noticeable gains in property, sales and transient occupancy (hotel) taxes. In a nutshell, more people are buying stuff and visiting L.A., and that has helped boost the economy. City officials are betting that those numbers will keep improving, and that will mean more tax revenue. They even anticipate that by 2017-2018, the city will eke out a tiny surplus (now that's wishful thinking). But are the projections realistic? As with all budgets, it depends on how you do the counting. Keep in mind that much of the anticipated revenue growth next year is based on one-time events (reimbursements, transfers, tax amnesty, and the like). Take that away and you're left with far more modest growth, about 2.4 percent. Truth is, the city's economy is not in especially good shape, with an unemployment rate of 11 percent. Let's also not forget the thousands of lost positions and innumerable service cuts over the last five years. Many of those reductions - what I refer to as the hollowing out of City Hall - are nowhere near being restored. So while you'll see lots of back-slapping around the mayor's office today, the reality is a lot more nuanced. Here is a dose of reality from the mayor's own budget statement:

The economy continues to struggle in its slow recovery from the recent economic recession. Unemployment, though declining, remains a problem and growth has been muted on national and local levels, preventing a rapid recovery like those following previous recessions. Receipts from many of the City's economy-sensitive revenues are only now returning to pre-recession levels: the transient occupancy tax was first to recover in 2012; property, sales and parking users' taxes are expected to reach pre-recession levels in 2013; and business tax is projected to do so in 2014. Though these receipts have recovered, they are well below levels needed to fund the City's growth in expenditures, levels that might have been realized under stable growth. Moreover, the utility users' tax is still below its peak prior to the recession due to lower gas users' tax receipts from historically low natural gas prices and lower communication users' tax receipts from declining landline usage and the shift to lower cost prepaid plans. Additionally, though the documentary tax is expected to see double digit growth this fiscal year and next with the recovery of the real estate market, revenue is expected to remain below the pre-recession peak for the next five years.

In case you haven't noticed, the housing market is still not very healthy. Yes, sales and prices are way up, but that's largely the result of pent-up demand and limited inventory. L.A. County had a 2.7-month supply of homes in March; the normal level is six months. Also in March, it took 31.5 days to move a median-priced home off the market, an unusually short time (a year ago it was almost twice that time). So while selling your place is a lot easier, buying a new home is, in many cases, prohibitive. L.A. City Councilman Paul Krekorian modulated the budget outlook in prepared remarks:

"The proposed budget the Mayor released today appears to be another step in the right direction, but any optimism should be tempered by the reality that we still have much more work to do. Our economic recovery is still slow and fragile, and all of the gains we've made in reducing the structural deficit could be lost if the city falls back into its old habits.

*From the LAT:

Villaraigosa's budget message was considerably more upbeat than the one offered by city officials a few months ago during the campaign for a measure hiking the city's sales tax. Police Chief Charlie Beck and City Administrative Officer Miguel Santana -- two high-level officials selected by the mayor -- had offered dire warnings about the loss of hundreds of police officers and reductions in other services if voters failed to pass the tax. Voters rejected Proposition A on March 5 despite those warnings. And one tax opponent said city leaders had not been truthful about the city's true financial health. "No wonder the people of Los Angeles don't trust City Hall," said Jack Humphreville, who wrote the ballot argument against the March 5 tax hike. "The message they delivered [during the campaign] relied on faulty projections that they knew were faulty."

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
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