Los Angeles Mayor Antonio Villaraigosa on Friday warned that the city could face a $400-million budget shortfall this year, predicting a severe drop in tax revenue because of the nationwide economic downturn. As a result, he told city department heads to plan for cutting jobs and services.
The turmoil on Wall Street and the state government's dire financial situation are expected to add more misery to what already was expected to be a tough financial year for Los Angeles, Villaraigosa said. The city is being socked by an 8.2% unemployment rate, 2 percentage points above the national average, and a worsening home foreclosure crisis that is curtailing revenue from property taxes and home sales.
"This is an extraordinary time, which requires extraordinary action by city leaders in order to protect taxpayer dollars and deliver the critical services to our residents," Villaraigosa said in a letter to department managers Friday.
In the letter, an annual missive that kicks off the planning process for the city's upcoming budget year -- in this case, 2009-10, which starts in July -- the mayor told department heads to submit two proposals: one that freezes spending at current-year levels and a second that includes a 9% across-the-board cut for agencies with budgets that exceed $20 million and a 6% cut for smaller agencies.
Interim City Administrative Officer Raymond P. Ciranna, the city's lead budget analyst, had predicted a budget gap of $282 million this year, a more optimistic forecast that included some expected growth in sales and business tax revenue.
However, Villaraigosa said the "economic upheaval on Wall Street" may dampen those potential revenues as well. He expressed concern that the state, which continues to face a severe budget crunch, may raid funds devoted to local governments and programs to close its own shortfall.
The city also expects to take a major financial hit because of the steep rise in gasoline prices; the $42.3 million budgeted this year for gassing up city cars and trucks was based on fuel being $2.89 a gallon, far below current prices. Labor contracts for city police officers and firefighters also expire in June, and both groups will probably negotiate continued cost-of-living increases and other benefits.
In his letter, Villaraigosa said he would work with the city's labor unions to explore ways to cut costs and increase revenue through "workforce reductions and other service- delivery efficiencies."
