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Eric Garcetti: Panicking won't fix the city budget

The City Council president urges pols and the press to tone down their alarmism over L.A.’s financial situation

February 23, 2010

Los Angeles City Council President Eric Garcetti stopped by The Times Monday to discuss with editors and reporters his perspectives on closing the city's $485 million budget deficit. Below are most of Garcetti's opening remarks to Times staffers.

Eric Garcetti: I would say that there are four driving facts that got us to where we are today. And excuse me, I'm sure you all know this, but I'll try to do it in just a little bit of detail and sketch it out for you.

One is that we saw growth in the number of employees that we've had since the very end of the Riordan administration. There were some good economic times, and actually in his last year in office we saw expansion by, I think, a couple thousand workers in our general-funded positions, at the end of the Riordan administration, beginning of the Hahn administration.

Robert Greene, L.A. Times: Concentrated in any one particular area?

Garcetti: No, they were actually pretty nicely spread. It was kind of Christmas time: Everybody who had ideas or programs ... we saw them happen in a lot of areas that weren't necessarily thought of as core mission areas, but certainly have had a good effect. We saw economic catalyst programs for our main streets and a lot of our neighborhoods. We saw growth in libraries. A lot of facilities that we passed bonds for throughout California were great at saying yes to building things, but not very good at saying yes to the money to staff them. But we had some money to do the staffing for the growth of our fire department, the growth of our police department, the growth of our libraries and some of the other civic municipality buildings that we put up.

The second driver has been that we've seen the salaries and benefits rise at a higher rate than the cost of inflation. Not as dramatically as some would have you believe, but because we have such little flexibility on the downside given our union contracts, we aren't a very nimble enterprise, being able to adjust naturally with when there's deflation or if there is a loss of revenue. We aren't obviously able to go down on people's salaries and benefits in a very nimble way.

Jon Healey, L.A. Times: You would not rule out the possibility of going down between contracts, would you?

Garcetti: Absolutely not, and I'll get to that. Yeah, that's where we're going, but we saw that rise a little bit faster than the rate of inflation.

The third driver has been obviously the economic situation, our revenues being down dramatically. Everybody's facing that. We saw them -- double-digit drops for four quarters in a row; the last time that happened was the Great Depression. We literally -- we've seen two or three quarters at a time, of double-digit drops, and it hasn't been in every revenue, but our overall revenue, a double-digit drop four quarters running. And we have about a year echo for the economy, so our delay because of the way revenues are collected is a little bit, even though some people are talking about brighter spots in the economy, we won't feel that for about 12 months to 18 months afterwards.

And then I would say that the fourth driver is related to that: the pension costs, which have more than doubled because of the way -- both the impact of the drop in the stock market and how we spread the risk on our pensions, our smoothing corridor, which is relatively tight compared to the state and other places that smooth that out. So we ride like the state of California with personal income on our pensions, we ride our revenues in a much more volatile way.

So those are the four things that kind of drove us to where we are today. Why were we able to even in some recessions survive? Every economic analyst that I've talked to, those who advise us and those who work in some academic institutions around here, say it was a growing economy. We have done well because Los Angeles has been a growing economy, so the things we are able to add to government were a combination of us having low debt; we had some very good policies around debt and continue to. We've had a good bond rating; even with our downgrade we still -- we went from kind of "very good" to "good," though obviously on a negative watch, and that has made our borrowing relatively cheap. And we've also looked at, I think, trying to live in a post-Prop. 13 environment. Prop. 13, I think as Tom LaBonge points out, maybe one or two painters lost their jobs, but the sense of how that hit civic government was not instantaneous, and it was much less than what we're dealing with now....

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