Fixing LA’s Budget Problems | Jay Beeber for City Council 2015

L.A.'s Newest Folk Hero

Fixing LA’s Budget Problems

Jack Humphreyville of CityWatch sent all candidates for CD4 a questionnaire regarding how we proposed to fix our city’s budget problems. Below I’ve posted my responses that were sent to him on January 27th. Jack responded with — “well done”.

How to Fix LA’s Budget Problems

 

Before we get into specifics, a word about philosophy. Government officials, elected and non-elected, often view the funds that are collected through taxes, fees, and DWP utility charges as the government’s money. In contrast, I believe that the money still belongs to the people and that government officials are simply entrusted with it, to be used for the public good. When you view these dollars through that lens, you have a different perspective on the appropriate use of those funds. Every dollar becomes precious, because it has been entrusted to your care. That’s the attitude I’ll bring to any decisions about the budget.
How do you intend to eliminate next year’s projected budget deficit of $165 million and the $425 million cumulative deficit over the next three years?

While I don’t mean to minimize this amount, $165 million is about 2% of the city’s total operating budget. Surely, with a little more belt tightening, we can find this amount in wasteful expenditures and non-essential line items. We can also help make up the difference by being more proactive in collecting taxes and fees due the city. The controller has already identified a number of items that go uncollected such as fees that should be paid by utility companies that cut into streets to replace water or electric lines and the parking users tax that is often paid by motorists but pocketed by parking lot operators who accept cash payments. Another source of uncollected revenue are “in lieu” parking funds that property and business owners are required to pay in some areas of the city in lieu of providing enough parking. Often times, these fees that are supposed to be paid monthly are not paid at all and the city has no mechanism to track or collect these unpaid fees. Additionally, replacing burned out light bulbs with new energy efficient bulbs could save millions of dollars in city energy costs over the long run. No one item listed here will make up the deficit, but every little bit will help. I’m confident that if we combed through the last decade or so of Controllers’ audits we’d find millions of dollars in recommended savings that were never implemented.
The City Administrative Officer is projecting a budget surplus of $24 million for the 2018-19 fiscal year. It assumes that there will be no raises or cost of living adjustments for City employees and that civilian workers will contribute 10% towards the cost of the City sponsored health plan. Do you support these assumptions?

I not only support the assumptions but would work to achieve this. It’s one thing to say you agree with something, it’s another thing entirely to work to implement it. I’ll work to implement it. With regards to employees paying more into their healthcare costs, I’d push for an even higher contribution amount if we could get it. When I ran a five doctor veterinary hospital with about 40 workers, we offered health insurance at an 80%/20% split. This is about average for the private sector. There’s no reason the city should be more generous with taxpayer dollars than businesses are in the private sector.
Do you support the unanimous recommendation of the LA 2020 Commission to establish an Office of Transparency and Accountability to oversee the City’s finances?

I believe this recommendation should be explored and implemented if it makes sense to do so. In theory, I’d be in favor of this as long as the office had some real teeth and could act, rather than just make recommendations. We saw how the Ratepayer Advocate’s role was watered down by the City Council and we need to avoid a repeat of that.
How do you propose to pay for the repair and maintenance of our streets and sidewalks?

First and foremost, we must proceed from the principle that any costs for street and sidewalk maintenance should be paid for out the general fund. That is a basic city service and our elected officials robbed us of that service by using our tax dollars to give generous raises to city employees starting in 2007 and for other pet projects. We should not reward this clever shell game with an increase in taxes. That creates moral hazard and would just encourage elected officials to do the same thing in the future knowing the taxpayers will bail them out. To fix our infrastructure more quickly, we should consider selling infrastructure bonds, again, to be paid for out of the general fund. Now is the time to do that, when interest rates are low. But any such sale of bonds must also have strong taxpayer protections built in, overseen by a civilian oversight board of experts, not political appointees. It should also include the ability for the city to outsource all or part of the work to private contractors that could get the job done faster and with less expense than using city workers.
Do you support the LA 2020 Commission’s proposal to form a Committee on Retirement Security that will report its recommendations on how to “achieve equilibrium on retirement costs by 2020” within 120 days?

This is another great idea by the 2020 Commission and should be explored. Again, the devil is in the details and we must ensure that any such committee is made up of independent experts insulated from the influence of the unions and politicians.
Do you support the City’s creation of the new tier of pension benefits for new civilian employees even though the Employee Relations Board questioned its legality?

Yes, I support this idea and the city should go to the wall to fight any attempt to prevent this from happening.
What are your plans for pension reform?

In 2003 the city’s share of pension payments was 3% of budget expenses. It is now over 21%. Granted, the much lower percentage in the early part of the last decade was due to the city underfunding the pensions, but even without that, we have had an explosion in pension costs due to elected officials giving unsustainable benefit increases and padding the city workforce. The city has underfunded the pension plans for over a decade and we realistically can’t expect to fix the problem in the short term. However, we must begin the process now or it will be too late. First, as stated in the previous question, the city must create a new tier of pension benefits for new hires. This is critical or we will never get our pension costs under control. Second, we must hold the line on any salary increases. As salaries go up, so do pension costs as they are directly related. Third, the city must negotiate with the unions to get city workers to pay a larger share of their retirement costs. City workers get a guaranteed payout upon retirement regardless of what happens in the economy or the vagaries of the market. If employees wish to continue getting a guaranteed payout, then they must pay more into the system for this privilege. Currently, they have the best of all worlds – low pay in, no risk, guaranteed reward. That is an unsustainable formula.

In the long term, I believe we must move away from a Defined Benefit Plan system and move towards a plan where payouts are somewhat dependent on the return of the invested funds. For example an “Adjustable Pension Plan” could work to protect both workers’ retirement benefits and taxpayers.
Do you believe that the City’s pension plans should be fully funded within 20 years?

Yes.
Do you support the proposal that would allow the City to amend future benefits for existing workers as was supported by San Jose Mayor Chuck Reed?

Yes. Unfortunately there are strong forces opposed to this idea, including the current State Attorney General, Kamala Harris. Hopefully, Mayor Reed will be able to get this initiative on the ballot in 2016.
Do you support the recent lowering of the investment rate assumption by the City’s two pension plans to 7½% even though it increased the City’s annual required contribution?

Yes, unless we have a more realistic rate assumption, we will continue to underfund our pension plans.
Under what conditions would you support the lowering of the investment rate assumption to 6½%, a benchmark recommended by Warren Buffett of Berkshire Hathaway fame and fortune?

Whatever rate assumption is used, it must be realistic and based on accurate estimates. We must recognize that any additional decrease in the investment rate assumption will result in the city allocating a larger percentage of the general fund towards our pension obligations. This must be accounted for in any long term budget plan.
How do you propose to finance the Mayor Garcetti’s plans for the Los Angeles River, Great Streets, and Sustainability?

We must first fund our basic necessities such as street and sidewalk repair, tree trimming, police and fire services, etc. Once we get our fiscal house in order we can look to more discretionary items such as remaking the LA river.
Mayor Garcetti pledged to phase out the $470 million gross receipts business tax? How would you replace the lost revenue?

I would be in favor of eliminating this tax as soon as possible. It drives business away from LA and makes us uncompetitive with surrounding cities. It’s unfair and illogical to tax businesses based on gross receipts, even if they make only a tiny profit or lose money. Unfortunately, due to our elected officials’ profligate spending in past years, we may be in a hole too deep to dig out of in the near future. Therefore, as an interim measure, I would be in favor of replacing the gross receipts business tax with a tax on net profits. This is slightly different that the “net receipts tax” that others have called for. The problem with a pure net receipts tax is that it favors businesses with heavy expenses in goods, while placing a larger burden on businesses that are heavy in employee costs. (Generally, a net receipts tax allows subtracting the cost of goods, but not the cost of labor.) I would go further, though, by making a firm commitment to phase out the new tax by some date certain in the next decade or so. This phase-out would have to be budgeted into our long term fiscal plans and locked in. I believe that if businesses knew that this tax would come to an end by a certain date, they would be more willing to locate in LA in anticipation of reaping the benefits of a lower tax rate. This would allow us to grow our tax base so we could make up the loss of the business taxes by an increase in our local economy.
Do you support the “benchmarking” of City services to determine their effectiveness and efficiency? And under what conditions would you support the contracting out of City services?

All successful private businesses must “benchmark” their services to be sure they are being effective. There is no reason the city should not do this as well. I am in favor of contracting out City services where the private sector can do the job more efficiently and at a lower cost. When making that determination, all costs of city labor must be calculated in, including benefits, overtime, pensions, etc. so there is a true apples-to-apples comparison. I’m confident that in most cases the private sector would be able to be more cost effective. This would especially be true if the city and state did not have rules and regulations requiring contractors to pay “living wages” or any of the other myriad of hurdles the city throws in the path of private industry wishing to do contract work for the city. I am also in favor of simplifying the rules and paperwork for getting city contracts. Currently only larger, well connected, contractors can effectively compete for contracts as they have the resources to jump through all the hoops necessary to get a contract award. By simplifying and streamlining the process, we would be able to bring more competitors to the table and get better deals, while providing opportunities for smaller businesses to benefit from city contracts.
Do you support transparent labor negotiations where all proposals and offers must be disclosed within 24 hours and that any proposed agreement be reviewed and analyzed by an independent third party prior to being approved by the City Council?

Yes, this type of transparency is critical to ensuring the taxpayers are protected during labor negotiations.
Under what conditions would you support a half cent increase in our sales tax to fund the restoration of City services?

I am generally opposed to any new tax increases. When you tax something, you get less of it. Having a higher sales tax in LA hurts local businesses and encourages shoppers to go elsewhere, including the internet, for their goods and services. This erodes our tax base. Also, most tax increase proposals are accompanied by a deceptive campaign to gain the voters’ support. We saw this with the last attempt to raise our sales tax when City officials claimed we’d lose 1000 police officers and have to cut city services “to the bone” if it didn’t pass. When the measure failed, they immediately backtracked saying that those consequences were “only a possibility”. As a City Council Member I’ll call out any of my colleagues that are less than candid on these matters. Rather than raising taxes, I’d be more inclined to seek options to monetize some of the City’s unused resources.
Finally, do you support placing a measure on the ballot where voters would have the opportunity to accept or reject an amendment to reform our charter that would require the City to develop and adhere to a long term financial plan, pass two year balanced budgets based on Generally Accepted Accounting Principles, and, over the next twenty years, fully fund the City’s two pension plans and repair and maintain our streets, sidewalks, and the rest of our infrastructure?

I am in favor of this ballot initiative and would work to get it approved and on the ballot and then eventually passed by the voters.

 

Jay Beeber


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