Business Update with Mark Lacter

Budgets and stadium plans

KPCC business analyst Mark Lacter talks about buget gimmicks and dowtown LA stadium plans.

Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, we've been talking about city budgets, county budgets, the state budget - it's not hard to find gimmicks. Why is that?

Mark Lacter: That's simple Steve - it's because politicians are afraid of making tough decisions that not all their constituents are going to like. Latest example is an effort by the city of L.A. to lease out nine public parking garages to private firms. The plan was proposed about a year ago, was supposed to have generated $53 million this year (which would have been decent money considering the wreck that L.A.'s finances are in), and for a while, the city had been in talks with a number of firms about doing a deal. But along came complaints from local merchants in Hollywood and Westwood who claimed that if the lots were turned over to private companies, parking rates would go up - and they would lose business.

Julian: Is there anything to support those claims?

Lacter: Not really -- and it seems hard to believe that there would be a mass exodus of shoopers because they have to pay another dollar or two for parking. But the complaints increased, and the City Council decided to water down the lease proposal, to the point where the private firms that had been interested decided it was not worth their while. So now they have to figure out how to come up with the $53 million that they were supposed to be getting. Most likely, it’ll be more furloughs and layoffs, though Mayor Antonio Villaragosa wants to keep pursuing the parking lot deal (he's rejecting the advice of his budget officer who wants to forget about the whole thing, at least for now). But this is what happens when local government tries to jerry-rig these short-term revenue gains that do nothing to address the longer-term financial problems.

Julian: Next year, LA faces a shortfall of $350 million -

Lacter: ...that’s right, and officials are running out of gimmicks. Now, a very different budgeting approach was taken by California Gov. Jerry Brown, who decided to cancel the sale of 11 government office buildings that would have netted the state $1.2 billion. But it was a lousy deal because taxpayers would have had to pay out way more in leases and interest. Of course, Brown will have to figure out how to make up that lost $1.2 billion, and that's not going to please everybody. But at least he decided not to keep kicking the can down the road - just what the mayor and the L.A. City Council should also be doing.

Julian: How does the downtown stadium plan fit into council's thinking?

Lacter: Well, it's hard to say at this point because no formal plan has been submitted, other than the promises by Anschutz Entertainment Group that no taxpayer money is involved. But the folks who follow this stuff say that public financing usually comes into the picture.

Julian: What will you be looking for?

Lacter: It could be infrastructure work or traffic mitigation, or in this case, the possible loss of convention business while the stadium is being built (remember that a key part of the proposal involves demolishing the West Hall of the Convention Center - that's the green building you see on the freeway). Keep in mind that AEG is very good at getting financial breaks. For the hotel tower at L.A. Live, it received a waiver on the city's 14 percent bed tax – plus other breaks involving millions of dollars.

Julian: You could argue that having the two hotels at L.A. Live is a real positive for the downtown economy -

Lacter: ...and we're seeing some of that that this week with activity surrounding the NBA All-Star game. But the city is in such financial straits that you have to wonder whether this is really the time for such a monster project, especially considering that the economic benefits of a football stadium are considered pretty minimal.

Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes business blogs at LA Observed.com and at kpcc.org.


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