Business Update with Mark Lacter

Brown's proposed budget; LA Ballot measures

KPCC business analyst Mark Lacter talks about Governor Jerry Brown's budget proposal; he also talks about some of the measures Los Angeles voters will have to choose on in the upcoming March 8 elections.

Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, is business starting to come around on Governor Brown's budget proposal?

Mark Lacter: Not really Steve, although two of the big local business groups endorsed the Brown budget plan, which includes a controversial five-year tax extension. They're not all that crazy about the tax extension, especially for such a long period, but they say that the alternative would be far worse - the alternative being $25 billion worth of budget cuts for the next budget year alone. Now, it's worth noting that both groups - the L.A. Area Chamber of Commerce and the Valley Industry and Commerce Association - are more moderate in their policy positions than the California Chamber of Commerce, or many of the local chambers around the state (membership is largely split between Democrats and Republicans). So their endorsements aren't likely to cause much of a ripple effect among Republicans - and it still leaves Brown with a March 10 deadline for cutting a budget deal with the legislature that would include a special election in June on the tax extension.

Julian: Do you see any signs the Republicans might be willing to come into Brown's camp?

Lacter: There’s been some talk, but that’s about it so far. And Brown needs at least a few Republicans to get the required two-thirds vote for the tax measure to make it on the ballot. He could try to finagle just a majority vote, though that comes with its own risks.

Julian: Looks a little like what we've seen in Washington.

Lacter: That’s right – the argument is that most taxes hinder job creation, which is not necessarily true but which certainly resonates within the business community. And even if the tax extension measure does end up on the ballot, there's no assurance that voters will go along. So for the governor, this becomes a very tough battle to win.

Julian: L.A. voters will be asked to vote on police and fire pensions. Is it enough to address the city's current pension problems?

Lacter: That would be Measure G, which would lower retirement benefits for folks hired after July 1, and it also would require police and firefighters to pay a little more into the system. And no - those changes won't be nearly enough to handle L.A.'s pension problems because they don't begin to address the current shortfalls. If you're a police officer or firefighter and you've worked 33 or more years, you are entitled to receive a yearly pension equal to 90 percent of your salary, and it's simply unsustainable.

Julian: About a decade ago, if I recall, L.A. voters were asked to increase pension benefits for public safety workers.

Lacter: That's the irony Steve. Frankly, no one was paying much attention to the potential exposure of those increases, and when the financial markets went kablooey, the investment returns for pension funds fell so much that the city was required to cover the difference. Which helps explain why pensions and healthcare benefits are likely to make up one-third of the city's budget by 2015, and it also explains why there have been layoffs and furloughs and all kinds of service cuts.

Julian: So if Measure G doesn’t do the trick, what choices are left?

Lacter: Some very unattractive ones: One is to try to renegotiate existing contracts - and good luck getting union workers to give back what they're been promised. Another is for the city of Los Angeles to file for bankruptcy protection, and good luck getting the mayor and City Council to agree on that (and even a bankruptcy filing is not a great solution for all kinds of reasons). So it's quite the dilemma.

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


blog comments powered by Disqus