KPCC business analyst Mark Lacter talks about the city of Los Angeles' budget problems and the city's options for getting out of the mess; he also talks about the budget problems in the Los Angeles Superior Court system and reveals why more defendants are actually asking for jail time.
Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, City Controller Wendy Greuel declared yesterday that the city of Los Angeles now has a fiscal emergency. Why?
Mark Lacter: Well, the basic reason Steve is not enough money coming in and too much going out. This has been building for some time, and for all sorts of reasons, but the real crisis emerged in just the last week when the Department of Water and Power would not turn over $73 million to the city's general fund. The DWP refused to do that because the city council refused to sign off on the rate increase the utility had proposed. The DWP says it needs the rate increase in order to increase the amount of electricity being produced with renewable energy, that being a goal of Mayor Villaraigosa (renewable energy costs more to produce).
Julian: Okay. So why is this a disaster?
Lacter: One big reason is the economy. Homes values are down and people aren’t buying stuff. So there’s not as much tax revenue coming in. But there’s more to it than that. For years, the city has been operating on the edge. And each year, the mayor and the council have been relying on individual buckets of money here or there to make up the difference between revenue and spending. This time out they've essentially run out of buckets.
Julian: When it rains a long time and your roof leaks, you know you need to buy more buckets.
Lacter: Exactly the point. There had been all kinds of warnings that the budget had serious problems. Former Controller Laura Chick and Councilman Bernard Parks have been especially outspoken. The warnings came as early as 2007, when it was still possible to come up with a coherent plan to cut spending. But spending cuts mean making constituents and interest groups unhappy, so the preferred solution was just hoping the problem would go away.
Julian: So what happens now?
Lacter: Well, it's still possible they can still wriggle out of this mess. The current controller, Wendy Greuel, has asked the mayor and the council to release $90 million from a reserve fund in order to keep the city solvent through the end of the fiscal year on June 30. That means being able to meet payroll, though it would leave the city with essentially no cash on hand. But even if they survive the next three months, there's still next year; and the basic problem has not gone away: the city is paying out too much, not just in current operating costs, but in hundreds of millions of dollars in pension obligations.
Julian: Another area that's getting beat up by the economy is the court system.
Lacter: Yeah, it starts with the huge cutbacks being made to deal with the budget deficit. Last month court administrators laid off more than 300 workers in the L.A. Superior Court system and there will be several hundred more losing their jobs in September, then more next year. And when you have fewer people working, you have more delays. Steve, they expect civil lawsuits to be delayed for years. Also, Superior Court judges say that their courtrooms have seen more shouting and even fighting by defendants and witnesses, probably because there are more cases that involve money; and Steve, more defendants are actually asking for jail time because they don't have the money to pay a fine.
Julian: They're asking to go to jail!?
Lacter: That’s right, they can’t pay the fines. Also, more attorneys are suing their clients for not paying legal bills. Now it is worth remembering that the court system has had to make cutbacks before. Tthere were some big layoffs in 2002, but this time the scope seems especially severe. You're dealing with two problems at the same time: the state's chronic budget deficit, which is not going away, and the effects of the recession, which are going away very slowly. If folks can't get a job, they can't pay their bills and that's why so many of them end up in court; very tough situation.
Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes business blogs at LA Observed.com and kpcc.org.