Herb Wesson’s Back Room Sales Tax Deal

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LA WATCHDOG - Rather than make the tough decisions involving Structural Reform of the City’s wobbly finances and inefficient operations, on Tuesday, November 13, the Herb Wesson led City Council is expected to “kick the can down the road” once again by placing a measure on the March ballot which, if a approved by a majority of the voters, will raise up to $215 million from hard pressed Angelenos by increasing the City’s sales tax by a half cent to 9½ %

The new rate includes the recently approved “temporary” quarter cent bump in State’s sales tax authorized by the recent passage of Proposition 30, Governor Brown’s Sales and Income Tax Initiative designed to reduce, at least in part, the State’s General Fund’s $16 billion deficit.

The City Council appears to have shelved the $32 million, $39 parcel tax that would have benefited the Department of Recreation and Parks because of the slim prospects that the new tax would win the necessary two-thirds vote from increasingly skeptical Angelenos.

The City Council also scuttled the doubling of the Documentary Transfer Tax and the 50% increase in the Parking Occupancy Tax because of the determined opposition of the well financed lobbies representing the real estate industry and parking lot operators.

More than likely, the Wesson gang cut a deal with these politically powerful lobbyists where in return for dropping the proposed taxes, they agreed not to oppose the increase in the sales tax and would make appropriate campaign contributions to support the sales tax measure.

The campaign to approve this new sales tax is already in high gear as Police Chief Beck essentially threatened to cut police services if proper funding was not available.

Of course, these scare tactics contradict the mayor’s Budget Policy and Goals memo that required all departments other the Police and Fire to plan for 10% cuts in personnel.

City Hall is also feeding us the line that a portion of these new funds would be used to improve our lunar cratered streets and deteriorating sidewalks.

In reality, the new sales tax revenue will be used to fund, in part, next year’s $300 million increase in salaries, medical benefits, and pension contributions, including at least $150 million for the Police and Fire Departments.

Even with this infusion of new tax revenue, the City is still projecting a Structural Deficit as pension contributions will continue to escalate by another $300 million over the following three years (July 1, 2014 to June 30, 2017). This amount is understated as the City’s two pension funds are unlikely to earn 7.75% on their investments, the overly optimistic assumption that the City uses to reduce its contributions to the City’s two pension plans that are underfunded by $10 billion.

The City is also underestimating this deficit since the projections do not adequately fund the repair and maintenance of our streets, sidewalk, and the rest of our infrastructure, nor do they include the impact of any new labor agreements entered into after July 1, 2014.

The Mayor and the City Council continue to blow smoke in our face by constantly referring to their “bold and innovative actions.”

But in reality, we are talking chump change compared to the magnitude of the operating deficits, the underfunded pension liability, and the deferred maintenance.

The Mayor’s attempt at pension reform provides only $15 million in savings in 2017 compared to a $1.3 billion pension contribution.

The proposed public private partnerships for the Zoo and Convention Center (that are being fought tooth and nail by the unions) will not make a dent in the Structural Deficit since they represent less than 1% of the General Fund.

The downsizing of the General Fund’s workforce by 5,000 positions resulted in significant savings for the General Fund, but these savings were devoured by the huge increases in salaries, benefits, and pension contributions for the remaining employees and the amortization of the $600 million expense associated with the Early Retirement Incentive Program.

Ratepayers also footed some of the bill as the City dumped 1,600 employees on the Department of Water and Power along with their pension liabilities of almost $200 million.

Once again, the City Council is rushing to judgment without adequate time or information to make a reasoned decision, hoping to please or not alienate the campaign funding union leadership during the upcoming election cycle by avoiding any actions necessary to eliminate the Structural Deficit.

This proposal by Herb Wesson was introduced less than three weeks ago, surprising the Mayor and the rest of the City Council.

The City Administrative Officer, the Chief Legislative Analyst, and the City Attorney furnished the analysis and the required documentation less than a week ago, hardly time to review and analyze the impact of this new source of revenue.

Rather, the City Council should defer any action on this matter until it has had time to review its impact on the General Fund, the negative impact on our local economy and its ability to create good jobs, and the City’s business unfriendly reputation.

At the same time, the City Council should conduct a thorough analysis of Mayor Riordan’s plan to reform the City’s three pension plans which, based on preliminary estimates, will eliminate the Structural Deficit and save Ratepayers over $300 million by 2020.

The City should also prepare a ballot measure that would require the City to “Live Within Its Means” where the City would be required to develop and adhere to a Five Year Financial Plan, approve two year balanced budgets based on Generally Accepted Accounting Principles, and, over the next ten years, provide adequate funding for the elimination of the City’s unfunded $10 billion pension liability as well as for the repair and maintenance of our streets, parks, sidewalks, and the rest of our crumbling infrastructure.

This rush to judgment to appease the City’s public unions is reminiscent the shenanigans of the City Council in late 2008 when it decided to place Measure B (Green Energy and Good Jobs Act) on the ballot in less than three short weeks.

And like the Measure B, the Mayor’s Solar Initiative that was a payback to campaign funding IBEW Union Bo$$ d’Arcy, the measure to increase our sales tax will be doomed to failure because in the words of Controller Laura Chick, the “process here stinks.”

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The following is the City Attorney’s “impartial” ballot tile and question for the proposed measure to increase our sales tax by 67%, from 1% to 1.5%.

NEIGHBORHOOD PUBLIC SAFETY AND VITAL CITY SERVICES FUNDING MEASURE.

“To offset severe and repeated State cuts and provide funding for: 911 emergency response services; maintaining firefighter, paramedic, and police officer staffing levels; continuing community policing, senior services, after-school gang and drug prevention programs; repairing potholes and sidewalks; and other general municipal services; shall the City of Los Angeles enact a one-half cent transactions and use (sales) tax, with required independent audits and all funds used locally?”

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(Jack Humphreville writes LA Watchdog for CityWatch He is the President of the DWP Advocacy Committee and the Ratepayer Advocate for the Greater Wilshire Neighborhood Council. Humphreville is the publisher of the Recycler -- www.recycler.com. He can be reached at: [email protected]) Illustration by Fred Harper –cw

-cw

CityWatch

Vol 10 Issue 91

Pub: Nov 13, 2012