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Guessing Game 

How L.A.'s budget clouds suddenly parted

Thursday, May 6 2010
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Los Angeles residents can be forgiven if their heads are spinning. Two months ago the City Council spoke of cutting 4,000 jobs to balance the budget. Today, the mayor says the budget can balance with just 761 job cuts, and that the final figure might be lower.

What happened? Has the economy truly improved overnight, bringing added revenue to the city? Or is this new budget based on fake numbers, as City Council Budget and Finance Committee Chairman Bernard Parks suggests?

For the answer, it helps to know Rexford Olliff, City Hall's oracle of revenues. Olliff is the guy who sits behind the presenter at committee meetings, mute but always available for the truly arcane questions. At 61, he has been estimating the city's tax receipts for 30 years.

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In January, Olliff says he looked at economic data and saw something he had never seen before: four straight quarters of double-digit declines in sales-tax revenues. He also knew that while economists were saying the recession was over, they warned that the recovery would be long and slow.

Forced to predict the change in sales taxes for the following year, he picked a number: zero percent.

City officials then looked at that number, and others like it, and saw a dire future, leading to predictions of as many as 4,000 layoffs, almost a third of the city workforce aside from police and fire workers.

By April, however, Olliff had seen data for the Christmas shopping season. The numbers were bad — another 6 percent drop from the already-lousy 2008 Christmas season. But unlike previous quarters, it wasn't abysmal. The rate of decline was slowing. So he changed his call, projecting that sales taxes would rise 5 percent in 2010-11.

He did the same thing for more than a dozen other revenue streams. For example, on the basis of higher rates for electricity and natural gas, he changed his forecast from a 3 percent drop to a 2 percent increase.

Together, his new forecasts pushed revenue $154 million higher — roughly the equivalent of saving 2,000 jobs.

It was a dramatic swing, and it was a guess. "It's more art than science by a whole bunch," Olliff tells the Weekly. "The art is to try to be accurate, but what I can say is I don't know what's going to happen. I made the best call I could."

Olliff's predictions account for a third of the "solutions" to balancing Mayor Antonio Villaraigosa's budget, introduced on April 20. Whether they will stand up is open to question.

Olliff's numbers are under fire in the City Council's budget committee, from which the actual budget will emerge. At stake is the council's own credibility.

It's worth noting that nobody else who has looked at the local economy saw such a wild swing in just a few months.

The UCLA Anderson Forecast, released in March, predicted a "muted" recovery — essentially the same thing the respected forecast said in December.

Jack Kyser, founding economist at the Los Angeles Economic Development Corp., also saw nothing over the winter that would make his forecast more optimistic.

Councilman Parks said on the first day of committee hearings, "It's a budget with pretend numbers."

Councilman Dennis Zine suggested the oracle must have been smoking something. "Whoever put this together [did it] with fantasy," Zine says.

The committee asked Olliff's boss, City Administrative Officer Miguel Santana, to go back and tweak the numbers. For instance, by way of comparison, L.A. County was projecting only a 4 percent increase in sales-tax revenue. Why not use the more conservative figure? Santana agreed, and Olliff couldn't really argue. The figure could be 4 percent. It could also be 6 or 7 percent. The difference is $2.8 million, a blip in a $4 billion budget.

In fact, Olliff's April estimates are now in broad agreement with other estimates. The Anderson Forecast estimated a 5.2 percent boost in taxable sales in 2011. The Office of the Chief Legislative Analyst, which provides independent assessments to the council, had a few quibbles but was more or less in agreement.

So maybe the new numbers are right.

If so, perhaps January's estimates were too gloomy.

"It would be nice if I knew the future," Olliff says. "We could have said, 'This is exactly the way it's going to work.' But I didn't know the future, and I still don't."

Of course, Olliff's role is only to give estimates. Policy makers decide what to do with them — and in February, they chose to panic.

Villaraigosa and the council began sensibly enough, with a call for 1,000 layoffs. Given the information available at the time, that was the right order of magnitude. But when the council appeared to hesitate, Villaraigosa saw an opening to bash its lack of courage, and started throwing around even higher figures — 2,000 or 3,000. That, coupled with the decision by Moody's Investors Service to put the city on a negative watch list, prompted the council to push the estimated layoff figure to 4,000, one-upping the mayor and showing Wall Street the city is serious about balancing the budget.

Though Santana backed that figure, it didn't originate from him. There was no analysis to support it and no plan to execute it. Cooler heads might have kept the figure at 1,000, expecting that revenues would bottom out.

Where does all this leave things now?

If you were an analyst at a major credit-rating agency whose job included figuring out what letter grade to assign to the city's debt, you might be a little confused.

"Hopefully, the city is committed to a fiscally responsible 2011 budget," says Ian Carroll, an analyst at Standard & Poor's in San Francisco. "Because that's what it'll take to maintain high credit quality. That's going to include a number of layoffs. The precise number is the city's call — not ours, of course."

The most significant proposals for job cuts fell on two departments: Recreation & Parks and the Library Department.

Though several city departments have grown quickly on Villaraigosa's watch, staffing in the Library Department has stayed flat. Under the mayor's proposal, which would cut 122 workers from the department, the staff would be almost 25 percent smaller than it was a decade ago. If those cuts are approved, the library plans to cut its opening hours to five days a week for the first time in the department's 140-year history.

"This is going to destroy library service," says Roy Stone, president of the Librarians' Guild. "The mayor is going to be worse than any disaster in the history of the L.A. Public Library — worse than the arson, worse than the earthquake, worse than Prop. 13. It's going to cause the library to be so depleted that it's going to take generations to recover."

The situation is a little less dire over at the Recreation & Parks Department, which would lose 93 workers. Most of those are in a program of subsidized child care. Other cuts include closing the Griffith Park Observatory on Tuesdays and ramping down other operations after the end of summer.

At the heart of such proposals is tension between cutting too little and draining the city's meager reserves — and thereby risking its credit rating — and cutting too much and laying people off for no reason. Since the future is unknowable, it comes down to which mistake you'd rather make.

"If I'm wrong, I hope I'm wrong by being a little bit too conservative," Olliff says. "But I don't want to be too conservative. There's enough problems without making them up."

Reach the writer at gmaddaus@laweekly.com

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