With City Hall this month looking to tax, charge and assess new fees on 4 million residents to make up for the biggest budget debacle in Los Angeles history — $406 million in the red — Mayor Antonio Villaraigosa is seeking to duck blame by claiming that he had no clue last year that the region was taking a big economic hit.
In a comment that surprised economists and taxpayer-rights groups, Villaraigosa, who has come under intense criticism since last fall for handing 22,000 city government workers a salary boost of $255 million over five years, now publicly insists that, “If we had known in ... August what we know today, we would have never approved these salary hikes.”
Was Villaraigosa really unaware of the housing slump and overall economic woes that had already begun wreaking havoc last year, when the mayor, a former labor organizer, sat down to negotiate salaries with the unions for city workers?
“I bet you that there are people who said, ‘No mayor, that is not the way it is,’” says Ted Costa, of the People’s Advocate in Sacramento. Costa, who was instrumental in the campaign to recall Governor Gray Davis, adds, “If we give them benefit of the doubt — that shows he’s incompetent. Then he shouldn’t be mayor.”
A lot rides on Villaraigosa’s persuading Angelenos to buy the idea that he was caught unawares. Yet, that strategy backfired miserably on Davis, who, riding a record-high $29 billion state deficit in 2002, insisted that he was never warned that taxpayers — and thus state revenues — were taking a severe hit from the dot-com bust.
Now, in a parallel situation, Villaraigosa and the City Council are wrangling over a record deficit and $90 million in fee and tax increases. These new costs to Angelenos come on top of a raft of new taxes, boosts in utility bills and other stiff fees that were only recently approved.
Trash pickup will jump 30 percent for single-family households over the next few years. It will cost more to go to the zoo, to save an animal from the pet shelter, even to flush your toilet. Moreover, voters ratified Proposition S in February, agreeing to let the city tax their cell phones and other forms of wireless communications, to the tune of $270 million a year.
A fat chunk of Villaraigosas’ new, $90 million package of pain would come from an unpopular hike in parking-meter fees and already steep city parking fines (to raise another $23 million). And the city’s widely criticized car-impound fees will jump $52 — a tax that critics say directly slams the working poor.
Yet, the mayor is not cutting the budget, despite all the media buzz that he’s wiping out 350 currently occupied city jobs. He is, in fact, boosting spending. On April 22, Villaraigosa released a record-high $7.01 billion spending plan. That day, to some incredulity, the mayor insisted to the local media that last year he was not told the city was in big trouble.
But, in truth, when the City Council last December approved Villaraigosa’s $255 million worth of raises for city-government unions, the real estate bubble had already burst. Economists were issuing clear-cut warnings as housing values sank.
The mayor’s press deputy, Matt Szabo, insisted to the Weekly a few days ago that Villaraigosa stands by his claim that he was in the dark. But economists see parallels to 2002, when Gray Davis claimed ignorance that the dot-com bust was slamming the state treasury, and kept spending.
Jack Kyser, senior vice president of the Los Angeles County Economic Development Corporation, which submits recommendations to the mayor every February, says that in February 2007 — seven months before Villaraigosa claims he had no warning of the economic drubbing to come — his organization advised the mayor to be ready for a hit from the housing decline.
The Economic Development Corporation expected a dramatic drop in city revenue from the “documentary transfer tax” and retail sales taxes. And because property taxes accounted for 35 percent of City Hall’s general revenue, a jolt to the housing market would clearly hurt local coffers, according to Kyser.
Kyser’s warning was right-on. The city suffered a $37 million shortfall this year just from special taxes paid for filing a deed after selling a house — the so-called documentary transfer tax. And property taxes are in a free fall, this year, representing just 20 percent of city revenues instead of 35 percent in recent years.
Kyser describes the city as a business, Villaraigosa as its CEO. He laments the apparent disregard for Angelenos who cannot afford the new costs. He laughed out loud at Villaraigosa’s claim that he didn’t know things would go so bad.
Says Kyser: “You couldn’t say that to stockholders. ... Look at the poor citizen under pressure from rising gas and food prices. They have to balance their budgets or pay nasty consequences. For the politicians, there is no apparent consequences. They just paper it over.”
Other politicians did see what was coming. Riverside Mayor Ronald Loveridge, whose area was also being badly hit, saw the signs in early 2007.
“The canary in the [mineshaft] was the downturn in tax receipts from sales of construction supplies,” Loveridge says. “That wasn’t this January but the previous January.” He immediately began looking for ways to cut his city’s budget.
In the midst of this, last May, Villaraigosa invited the 22,000-member Coalition of L.A. City Unions to talk about raises. It marked a new level of coziness between the mayor and powerful government unions, which play a hands-on role in financing and electing the mayor and 15 City Council members.
Of the contract talks, Barb Maynard, spokesperson for the union coalition, recalls, “There is always a war of words in the media, but this didn’t happen this time.”
The mayor could be happy because, sitting on the “management” side of the table, he was clicking along with a powerful group of unions which can — and do — pour millions of dollars into electing the very city leaders who later give them their raises.
Yet, even as they met last summer, “sales in L.A.’s housing market were down 30 percent,” says Jerry Nickelsburg, an economist with UCLA’s influential Anderson Forecast, who he briefs both the mayor and City Controller Laura Chick.
Lori Gay, president of Los Angeles Neighborhood Housing Services, says foreclosures were ticking away at the rate of one every 90 minutes in the city. “We knew this was going to a problem last summer,” she says. And, she predicts further, “This summer will be a bloodbath.”
Things got so bad, in fact, that in November 2007, a month before the City Council approved Villaraigosa’s negotiated raises for 22,000 workers, Jesse Jackson stood on a porch in South Los Angeles and declared: “We’re looking at a tsunami coming our way, a great economic Titanic.”
Another member of the negotiating team, City Council President Eric Garcetti says that he saw a problem brewing. “I, myself, seeing the storm clouds, made sure that there was an insurance clause” in the union contract, which would compel both parties to revisit the deal if city revenues dipped too far.
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The mayor’s spokesman, Szabo, says the insurance clause was included “for just this situation.” But most city unions are refusing to reopen their contracts to help the city out. On April 29, the coalition alone agreed to search for savings.
Angry taxpayer groups say the situation echoes that of the recalled Davis, who pushed through a budget filled with big raises for prison guards and other government workers in 2002–03, as the economy sank. His overspending led to a $38 billion state deficit, larger than the budgets of some countries.
Activist and lawyer Walter Moore recently claimed on his Web site, “Villaraigosa wants to spend more than $7 billion; the population is now 4 million; and that works out to $1,750 per person.”
Moore, who plans to challenge Villaraigosa for mayor, adds, “So the next time someone claims that there’s a ‘budget crisis,’ and that we need ‘cuts’ and ‘revenue enhancements,’ ask him to explain the facts on which he bases his claims. Be prepared for a blank stare.”