The Los Angeles treasurer's office reported Tuesday that its estimates of the city's investment income were vastly overstated, meaning that $21 million will be added to a $71-million projected deficit and prompting calls for an investigation.
City officials said their displeasure over the bad financial news was compounded when they learned that Treasurer J. Paul Brownridge left on a vacation after issuing a memo Friday on the shortfall.
"This was a horrendous act of incompetence and a horrendous act of unprofessional behavior," said City Councilman Zev Yaroslavsky. "It puts the city's ability to do its job at great risk."
Brownridge, who was said to be returning Tuesday from Mississippi, could not be reached for comment.
In Friday's memo, he reported that an estimate that the city would receive $39.4 million in interest income over the previous and current fiscal years had proved to be $21.4 million too high. Only $18 million in interest will be earned in the two years, he reported. Brownridge said the city had less money to invest than expected and interest rates were lower.
Yaroslavsky called a special session of the council's Budget and Finance Committee, which he chairs, for today to question Brownridge on the overestimate. City officials said the error would lead to new proposals for balancing the city budget. News of the higher deficit came on the same day that the council heard protests from dozens of business people and city employees over plans to raise business taxes and lay off city planners and building inspectors.
In Brownridge's absence Tuesday, Assistant Treasurer Gerald Capodieci was forced to explain the overestimate of income, which comes from the city's deposits of about $500 million in banks and savings and loans.
Capodieci blamed the miscalculation on a shortage of auditors in the treasurer's office. He said the office had lost 13 employees because of a citywide hiring freeze, including several auditors responsible for tracking income from the city's accounts.
The assistant treasurer said the understaffing could lead to further difficulties.
"There could be other problems. There could be problems in banking," Capodieci said, adding that the treasurer's office was in the worst condition he had ever seen because of the layoffs.
Capodieci also said that Brownridge had issued his report to the city controller's office Friday and assumed that it would be passed immediately to the mayor, the City Council and City Administrative Officer Keith Comrie.
Those officials, however, said they did not receive the information until this week.
The disclosure was particularly sensitive, Yaroslavsky said, because of the history of the treasurer's office, which was accused under Brownridge's predecessor of investing in a bank without competitive bidding at the behest of Mayor Tom Bradley. Bradley was a paid consultant for the bank at the time, but later repaid $18,000 in compensation.
Brownridge had promised after being appointed by Bradley in early 1991 to reinvigorate the office and earn greater returns on the city's money.
City officials said that they had doubts during the last year about the revenue estimates from the treasurer's office, but that they were reassured the income was accruing as projected.
Yaroslavsky cited an August report in which Comrie said he had asked the treasurer's office whether it might have overestimated interest income by $15 million. Comrie reported that he was assured the discrepancy was merely a technical adjustment that would not add to the projected deficit.
Capodieci told angry council members Tuesday that the office began to realize something was amiss in September but did not complete an analysis of the shortfall until last week.
The assistant treasurer said the office had protested that it could not make accurate estimates without more auditors, a complaint that was made "to anybody who would listen."
But Councilman Richard Alatorre, another member of the Budget and Finance Committee, said the City Council never heard complaints that understaffing could hamper revenue estimates. Yaroslavsky added that other departments had continued to function well with fewer employees.
"They kept this pretty much close to the vest and that is inexcusable," Yaroslavsky said. "It's mind-boggling."
Because of the new projections, the City Council postponed until early next month a vote on how to close a budget deficit that is approaching $100 million.
During a public hearing Tuesday, it became clear that proposals by Yaroslavsky to raise a business tax and lay off employees will meet stiff opposition.
The moves are designed to raise money to restore the Police Department to its previously authorized staffing of 7,900 from its current 7,800.
But business people said a new tax on out-of-state sales would drive businesses out of Los Angeles. Garment company owners, filmmakers and aerospace executives said the tax would hit them particularly hard, costing much more than the $11 million estimated by city officials.