KPCC's business analyst Mark Lacter talks about another election around the corner.
Steve Julian: Seems we've been talking about it for months - well, we have: one election is about over - but another one just getting started. That would be LA's municipal election in March, where voters are going to be deciding on a new mayor - and most likely at least one ballot measure to raise taxes. Los Angeles faces a deficit of around $220 million. Mark, so what are its options?
Mark Lacter: Steve, the city has to either raise more revenue or make additional spending cuts - and keep in mind that several thousand jobs have been eliminated already. So, you have City Council President Herb Wesson proposing a half-cent increase in the sales tax to 9.25 percent, which could help bring down the deficit quite a bit. It also would mean a higher sales tax than many cities in the area, including Beverly Hills, Pasadena, Burbank, and Long Beach. And as you might guess, business groups aren't thrilled with Wesson's plan, which is only being considered at this stage.
Julian: LA has a bad reputation in that sense.
Lacter: It's considered one of the most unfriendly cities to do business, and the concern is that the city will be at a disadvantage next to lower-taxed locations. That's not such a big deal for a loaf of bread, but a $30,000 car is something else. Now, the council has been considering other tax increases to put on the ballot - one that would raise taxes for parking lot operators and one for real estate sales. That, of course, has all the parking lot owners and real estate agents up in arms about having to shoulder the costs of closing the deficit.
Julian: That’s why Wesson's proposal might be seen as attractive - no one group gets singled out.
Lacter: Everybody subject to the sales tax would get hit. But that will be a tough sell. Mayor Villaraigosa says he won’t support the plan unless the council also approved cost-cutting measures he has supported, such as privatizing the city zoo and the Convention Center. The basic problem, as it's been for several years now, is that the city of L.A. has way too much money going out - a lot of it in health and retirement benefits - and not enough money coming in through tax revenues.
Julian: Former Mayor Dick Riordan has pushing his own ideas to help reduce the deficit by having a measure on the May ballot... explain that, if you would.
Lacter: It would do away with traditional pensions for new hires and replace them with a 401(k) system that would be less costly to the city. In addition, current employees would contribute an amount equal or greater to what the city shells out. And pay raises would be excluded from the amount used to determine retirement benefits. So, it's a big deal. Riordan has been a critic of the current pension system, and he's warned that the city might be forced into bankruptcy. The unions aren't too happy with Riordan's plan, and they're hoping to discourage voters from signing petitions to get it on the ballot at all (he needs almost 250,000 signatures by the end of the year).
Julian: What if all that happens, and voters pass the measure?
Lacter: It would be challenged in court - just as is being done in San Jose. Voters there passed a plan last year that requires city workers to either contribute more to their pensions, or to accept more modest benefits. The courts have ruled that pension benefits are considered "vested" rights, and that they can't be reduced without the government providing an equal benefit. And it makes sense - the city is contractually obligated to fulfill its agreements. Otherwise, why have a contract?
Julian: And there are lawsuits.
Lacter: Yes, the litigation is just starting in San Jose. It’ll drag out for years. By the way, the mayor is proposing his own plan to adjust pensions, but it would only target new workers and he's getting pushback even on that. That brings us back to Councilman Wesson’s idea of raising taxes. There really is no easy way out. Of course, the economy might improve so much that the city can add to its coffers without having to tax more or cut more. It's a nice thought, but not very likely.
Julian: Thanks for that bit of cold water.
Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.