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A grim assessment of L.A.'s finances

City Controller Wendy Greuel declares an 'urgent financial crisis' and says the only way to continue paying bills in the short term is to begin draining the city's already limited emergency reserve.

April 06, 2010|By Phil Willon and Maeve Reston

The city's top financial official issued a grim assessment of the escalating budget crisis Monday, warning that Los Angeles could be unable to pay its bills in just over four weeks.

City Controller Wendy Greuel declared an "urgent financial crisis" and said the only way to continue paying bills in the short term was to begin to drain the city's already limited emergency reserve.

Greuel's announcement was the latest development in an increasingly bitter standoff between the City Council and the city's Department of Water and Power over how much the municipal utility should charge ratepayers and how much it should contribute to the city's treasury.

DWP officials have proposed rate increases that would range from roughly 9% for most users to as high as 28% for some. The council has blocked those increases, responding to irate reactions from constituents. DWP officials have said that without the extra money, they cannot meet their commitment to send the city an additional $73.5 million on which budget officials say they have been counting.

Interim DWP General Manager S. David Freeman, in a letter sent to Greuel Monday morning, said that he would urge the utility's board of commissioners -- all appointees of Mayor Antonio Villaraigosa -- to withhold the $73.5-million payment. Without the rate increase, he said, the DWP would not have "surplus revenue" to contribute to the city while still paying its own bills.

Angry council members said they were skeptical of Freeman's assertion and accused the giant agency -- the nation's largest municipal utility -- of trying to use the payment to force through the rate increase.

"It seems they are holding the whole city of Los Angeles hostage because of their inability to hold up to their word," council President Eric Garcetti said.

The mayor, in response, reiterated his order for agencies to cut spending and expedite bill collection.

Greuel said the city would need to pull money from its $191 million in reserve funds immediately to pay its bills next month. She expects the city to be out of money, and probably in the red, by June 30.

"This is the most urgent fiscal crisis that the city has faced in recent history, and it is imperative that you act now," Greuel told the mayor and council members. "That is why I am asking you to immediately transfer $90 million from the city's reserve fund to the general fund so I can continue to pay the city's bills, and to ensure the fiscal solvency of the city."

Acting City Administrative Officer Ray Ciranna, the city's top financial analyst, said that using the reserve funds, plus agency spending freezes and other savings could reap enough money to cover Los Angeles' bills through the end of the fiscal year, June 30. Some officials fear that using that money would not only leave the city without reserves in case of emergencies, it would also probably trigger another downgrade in its Wall Street credit ratings.

"We think we could probably cover the current year deficit without the $73 million. But it leaves us with no reserves, which is not good," Ciranna said.

Even with that extra money, several council members remained concerned that the city would be in desperate financial straits at the end of the budget year, especially if tax revenue continues to drop. They also characterized Freeman's recommendation to withhold the money as retribution for the council's rejection of the rate increases, saying DWP's stance would require adding to the 4,000 city job cuts already authorized.

"I think we have folks who are over in the DWP that are playing games with people's lives," said Councilman Bernard C. Parks, who heads the city's budget committee.

Parks continued to question assertions by DWP officials that the agency's financial situation had deteriorated. In March, DWP officials assured the council that the utility would transfer a total of $220 million to the city's general fund by June 30 -- the utility has paid only $147 million thus far.

Councilman Greig Smith said the city has few, if any, options to recoup the remaining money before July 1. Even additional layoffs could not be processed that quickly, in part because many employees are protected by a labor agreement through the end of the current fiscal year.

"Our reserve fund was already very marginal to begin with; this could push it over the edge," Smith said. "That would mean we would have nothing in the tank on June 30," at the end of the fiscal year.

The fight with the DWP escalated in late March, when the council rejected the Villaraigosa-backed plan to raise rates for households.

When the proposal was first mentioned two months ago, Villaraigosa and his staff pitched it as an environmentally friendly initiative that would wean the DWP off dirtier coal. Weeks later, the mayor said the extra revenue also would help the utility cover rising coal costs and renewable energy contracts signed by his administration since 2005

To address concerns about the utility's fiscal health, the council approved a smaller electric rate increase of 4.5% last week and sent it back to the DWP board for approval.

But instead of approving the council's more modest rate increase, Villaraigosa's appointees on the DWP board voted for a 5.7% increase over three months, which was swiftly vetoed late that night by the council.

phil.willon@latimes.com

maeve.reston@latimes.com

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