Business analyst Mark Lacter joins KPCC once a week for an in-depth look at economic issues in Southern California.
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The first order of business for the new mayor of Los Angeles

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KPCC's business analyst Mark Lacter says there will be plenty of financial challenges for either Wendy Greuel or Eric Garcetti as L.A.'s next mayor.

Steve Julian: Mark, when it comes to money matters, what's the first order of business for the new mayor?

Mark Lacter: It's all about the budget, Steve, which is still $100 million or so in the red - in large part because of the city having to pay out so much in pension and health care benefits.  The public unions are trying to rescind a pending increase in the retirement age, along with a reduction in benefits for workers who are hired after July 1.  Now, in addition, outgoing Mayor Villaraigosa would like to pare back - or even eliminate - a five-and-a-half percent pay raise for city workers effective next January.  As you might imagine, union officials are not happy.  They say that they've already made sacrifices in the form of furloughs and higher pension payouts.  Frankly, it's kind of a jumble, and we haven't gotten much detail from Wendy Greuel or Eric Garcetti in how they intend to deal with these issues.

Julian: Where does the city stand now in terms of debt?

Lacter: Well, L.A. is obligated to help cover retirement and health care costs - even if it means cutting back on city services.  The good news is that the economy has been improving, which means that more tax revenue will be coming in.  But, the extra money is not expected to fully offset the pension obligations, and those obligations might actually increase over the next few years, which puts city officials in a tough spot.  Do they try cutting back on employee benefits even further, which would surely create more animosity with the public unions, or do they keep things more or less status quo, which will continue to put the squeeze on services.  One more thing: will the new mayor be able to work in concert with the LA City Council (which - after all - has the final say in all budget matters)?

Julian: It's a reminder that the mayor has only limited power, isn't it...

Lacter: Some might argue that it's City Council President Herb Wesson who is really in charge.  This is the challenge that's been faced by previous mayors, and that's why it's so important for either Greuel or Garcetti to establish some sort of working relationship with the council.  One area that's bound to come up is the city's business tax, which both candidates would like to eliminate.  They think dropping the tax will help attract and retain businesses, which is totally at odds with what you'd expect from these two liberal-leaning Democrats.  Actually, it's more akin to the policies of a Mitt Romney, but both Greuel and Garcetti are convinced that doing away with the business tax will mean more jobs for L.A.

Julian: If you drop the tax, can that lost revenue be made up?

Lacter: Well, not likely - and, as we see with the pension problems, L.A. needs all the revenue it can get.  More broadly, there's the matter of doing business in L.A., which still can be a minefield of rules and regulations (though, in some areas it's a little better than it used to be).  In years past, mayors have tried to attract industries into the city - biotech was one, electric cars was another - though incentive-type programs don't have a great history of working out well.

Julian: What about tech or Silicon Beach, as they're calling it?

Lacter: That's certainly a success story - you have all kinds of software firms, Web designers, and ad agencies setting up shop on the Westside.  But, that's not the result of anything the city did - it's just young entrepreneurs wanting to be close to other young entrepreneurs, and all of them wanting to work near the beach.

Julian: Is there one challenge facing the new mayor that's more challenging than all the others?

Lacter: The same thing that faces any elected official in L.A.: controlling the influence of special interests (an issue, by the way, that received scant attention during the campaign, perhaps because both candidates were receiving contributions from those same special interests).  We rely on elected officials to consider all sides, and the two candidates were talking a good game during the campaign.  Of course, what's promised before an election and what happens once they're in office are not always the same thing.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA