Threats this week by Los Angeles' powerful municipal utility to withhold $73 million from the treasury helped reveal a city that has become increasingly dependent on indirect and onetime sources of revenue to pay its bills.
Combined with the worst economic decline since the Depression, those dwindling sources of cash have forced city officials to confront a problem they have long tried to ignore -- a steady growth of the city payroll for the last decade.
The city's core 35,000-member workforce increased by at least 3,000 between 2000 and 2009. During the same time, Los Angeles' yearly pension contributions more than tripled to $723 million, fueled by investment losses but also by the larger payroll.
When the effects of the failing economy surfaced in late 2007, Mayor Antonio Villaraigosa and the City Council approved significant raises for union workers and pressed ahead with a police force expansion even as they talked openly of a need for cutbacks and threatened layoffs.
"It's a head-scratcher," said Jack Kyser, a Los Angeles County Economic Development Corp. economist. "If you know that tough times are coming, you should be ultra-cautious. You've had ongoing warnings about the magnitude of the downturn and they haven't been listening."
Now, the city's $4.4-billion general fund -- which pays for police, libraries, parks and other city services -- has a $212-million budget deficit that could grow to $1 billion in four years without drastic cuts. Publicly, city officials have blamed the steep drop in tax revenue, but concede that the payroll increases have played a major role as well.
When he took office in 2005, Villaraigosa promised to erase the city's long-recognized "structural deficit" -- the gap between revenue and spending. He weeded out budget gimmicks used for years, yet, according to the city's chief legislative analyst, in his first budget the mayor proposed the creation of 805 positions.
Villaraigosa now acknowledges that his efforts were undermined not only by rapidly declining tax revenues but by salary increases and his vow to expand the LAPD.
"It's a crisis of spending and it's also a revenue crisis. It's a crisis of both," Villaraigosa said. "I take responsibility. It predates my administration, but there's no question that it also occurred during my administration."
City Administrative Officer Miguel Santana said officials for years have relied on finding one-time pots of money to cover up to $200-million annual budget gaps created by a growing workforce, expanded services and generous pay packages.
"If you look in the context of our $4-billion budget, this year's drop in revenue is not unsurmountable -- $184 million," Santana, Los Angeles' top financial analyst, said in a March interview. "But it is significant if you're living by the skin of your teeth."
To help cover the city's bills, elected leaders have reached beyond staple tax revenue collections; liquidating city property, increasing parking meter and trash fees, and diverting revenue from the Department of Water and Power.
Since 1992, the DWP has provided the city budget $2.7 billion collected from electric bills.
On Thursday, Controller Wendy Greuel warned that the city could run out of money by June 30 if the DWP withheld a promised $73-million payment to the general fund. Acting DWP General Manager Raman Raj favored rejecting the transfer after the council turned down a proposed increase in electric bills, which Raj said put the DWP's "financial outlook in significant jeopardy."
Now Villaraigosa and the council have few options, with Los Angeles voters in no mood to approve a tax increase and with few other sources of revenue left.
The mayor and council already have authorized the elimination of up to 4,000 city jobs, on top of the 2,400 workers who were allowed to retire early.
Former City Controller Laura Chick said officials waited until things were so bad that they had no choice but to act. "That's an insane way of governing. We don't have political leadership today that is strong, courageous and thoughtful enough to look into the future."
What makes things worse is that the mayor and council members had been put on notice, Chick said.
As city controller, she warned in 2007 that the reserve fund was depleted. That same year, then-City Administrative Officer Karen Sisson projected a $215-million shortfall.
Council member Bernard C. Parks urged colleagues to prepare layoff lists because of a potential "drastic reduction" in revenues. Despite those warnings, the mayor and council signed off on raises for the Coalition of L.A. City Unions, which represents 22,000 civilian employees.
The projected cost of the labor contracts, which have been renegotiated as a result of the crisis, was $255 million over five years. One union hailed its agreement as the "best contract in 40 years."