GWNC Provides Plain-Talk City Finance Info in “Budget 101”

Have you ever wondered how the City of Los Angeles sets its budget priorities, how and when it maps out its budget each year, what the city Controller does (and is that the same thing as a “Comptroller”)…or how stakeholders can have a say in the whole confusing process?

On Wednesday, August 26, the Greater Wilshire Neighborhood Council presented a special online “Budget 101” seminar, with special guests Ron Galperin (Los Angeles City Controller) and Jack Humphreville (one of the GWNC’s two Budget Representatives and the Co-Chair of the city’s Neighborhood Council Budget Advocates group).   The event was produced and moderated by Julia Moser, the other GWNC Budget Representative.

Moser, a relative newcomer to the GWNC (and also a current contributor to the Buzz), says she put the event together because she has become more interested in local politics since returning to LA from the east coast not long ago.

“I’m in a fairly liberal and politically engaged bubble,” Moser wrote to the Buzz about how she became interested in learning more about how the city works. But even in that fairly active bubble, Moser said, she has noticed that many people still don’t really understand much about city government.  For example, she said that during the recent protests, she was surprised to see a post from a prominent writer blaming LA Mayor Eric Garcetti for something LA County Sherriff Alex Villanueva said. (Which makes no sense if you know that the Sheriff’s Department is managed by LA County, not the City of Los Angeles.)

But Moser said the orgin of her interest in local civics actually goes back quite a bit further. “I have a very clear memory of starting seventh grade at Marlborough and learning that Franciscan monks founded El Pueblo de Nuestra Señora la Reina de los Ángeles on September 4th, 1781,” Moser said.  “I remember the City of Los Angeles’ full name to this day, and I remember the date because September 4th is also Beyoncé’s birthday. But we did not learn what the Mayor of Los Angeles actually does, or how much power City Council has, or that County Supervisors are actually pretty important.”

Moser said she told her mother, Greater Wilshire Neighborhood Council President Caroline Labiner Moser, that “I wish we’d learned Los Angeles Civics in school in addition to the history, because frankly this city is really confusing!”  In fact, she said, “It’s difficult as a layperson to delineate what is the City’s responsibility, what is the County’s, how angry should we be at the Mayor or our City Councilmembers when things seem to be going wrong on so many fronts. Who is the right person to ask?”

So Julia brought the idea of a “Civics 101” workshop to the GWNC Outreach Committee…but as post-demonstration talk about “defunding” the police gained traction, Moser said she further “realized the City budget was the place to start” instead.  She signed on as a GWNC Budget Representative (each neighborhood council has two of them), and then started working on the Budget 101 forum idea.

“I personally didn’t feel informed enough on the budget process to be able to weigh in on a substantive level, besides giving vague platitudes about fighting systemic racism in our institutions and wanting to reduce police violence. I didn’t understand what our City budget actually funds, where the money comes from, what it means that we’re in a deficit to our day to day lives, or how to even begin looking at a spreadsheet and parsing out how to use those numbers to make the City a better place for all its residents. And I knew that if I had that many questions, I couldn’t be alone.”

Moser’s idea finally came to fruition last week on Facebook Live, where she engaged in a lively and often quite entertaining question and answer session with Galperin and Humphreville about city finances.  Here are the highlights…and if you’d like to watch the full discussion, it’s still available on Facebook Live.

Ron Galperin

What is the Controller’s job?

Galperin said “Controller” may be the most “deceptive” job title among elected officials in city government, since he doesn’t actually get to control “everything.” Still, he said, it is officially the Controller’s job to keep the city budget under control. More specifically, the Controller signs checks for the city, and also tracks city revenue, expenses and other financial data, which you can find much of on Galperin’s website, which is chock full of varioius dashboards and other public tools his office has created.

What’s the difference between a Controller and a Comptroller?

Galperin said the difference is mainly just “two letters.”  In other words, he said, there really isn’t much difference, except that “Controller” is sometimes used more in the business environment, while “Comptroller” is found more often in the public sector.

Where does the city’s money come from?

Galperin said a large part of city revenues comes from entities the city owns, called “proprietaries,” which include the Department of Water and Power (which makes most of its money from bills paid by ratepayers), LA World Airports (LAX), and the Port of Los Angeles.  There are also other “core operations” such as taxes and fees (e.g.  a portion of property taxes, license fees, business taxes, etc.), which bring in 63-64% of city income. And then are several special funds, holding money from and for very specific purposes.

Overall, Galperin said, if you want to see how the city spends its money, look at the Checkbook LA page on his website, which shows all the things the city has purchased in the last 10 years, and what it has paid for each of them.

Finally, Galperin said, the city’s general budget is about $10.5 billion, not including costs for the proprietaries.  That’s a lot of spending, he noted, and while it’s officially his job to watch over it all, he also said he can’t do it alone, and it’s very important for others – like Jack Humphreville and others outside of city hall – to keep an eye on things, too.

What does the budget year look like?

According to Galperin, the Mayor puts out a budget policy letter each year in September, and city departments submit their requests in early January.  The mayor then reviews those requests, and Galperin’s office also provides revenue forecasts — which have usually been “extremely accurate” until this year, when the economy changed significantly in response to the COVID-19 pandemic.  After that, Galperin said, the budget process ramps up in April, and the Mayor releases a budget proposal on April 20, which must be debated and approved by the City Council by June 1.  The fiscal year ends on June 30, and the new budget year begins on July 1.  (Again, though, Galperin noted, this year was an exception, with few hearings before the budget proposal was passed by the City Council, because there were so many unknowns.)

What does the city budget actually cover – is it as simple as the city being in charge of things you can see (streets, the Zoo, etc.), while the County is in charge of less tangible items (such as health)?

Not necessarily, said Galperin.  In fact, he explained, the largest portion of the city budget goes to public safety – the police and fire departments.  And then there are more than 30 different city departments, such as Planning, Building and Safety, and more.  And even though most social services are handled by the County, the city also has Departments of Aging, Disability, and others.  And then there are issues – such as homelessness – for which both the city and county are very involved in different ways.  (For example, the city handles more of the “bricks and mortar” projects for homelesness, such as housing, while the county handles more of the social services for homeless individuals…though those lines are not absolute.)

What are the biggest misconceptions people have about the city budget?

Galperin said one of the biggest misconceptions is that there’s room to do major re-budgeting every year.  But things just don’t change that quickly, and most of the General Fund expenses are for personnel (including salaries, health care and pensions), which are contracted and “pre-programmed” often years in advance, and for several years at a time.  So the flexible items each year are actually a pretty small portion of the overall budget.  Pensions and other big personnel costs, he said, are pretty fixed from year to year.  That means that while small budget changes are possible each year, it can take much more time, over many years, to make “significant” changes in how the budget is allocated.

What is the Reserve Fund?

The Reserve Fund is the city’s “rainy day” fund, said Galperin. And just like individuals, the city needs to have savings to fall back on.  About 5% of the budget should be set aside for the Reserve Fund each year.  This year, unfortunately, he said we are not meeting that threshold, because the city is using reserve fund money to maintain services while revenues are down due to the pandemic.  So it will be a challenge to maintain adequate levels of reserve until we see some recovery in certain kinds of revenue, and that won’t happen overnight, even if someone “waves a magic wand and makes COVID go away,” which won’t happen.

Which city revenue sources have been the hardest hit by COVID?

Galperin said the hardest hit sectors include tourism, travel and entertainment (nationwide, but here, too).  Also, our unemployment rate is “double” the national average – while we were at about 4% in March, we are now “just shy of 20%”…which doesn’t even take into account people who are underemployed, self-employed, gig workers, and small business owners who are earning much less this year than they did before.  And all of that affects city revenues. In the last fiscal year, which ended in June, Galperin said, we still saw more income than in previous years, but this fiscal year will be worse.  For example, he said, the hotel tax “plummeted,” and so did parking tax revenues.  We haven’t yet seen decreases in property taxes, though – the residential real estate market is still going “gangbusters,” and cannibis revenues are doing well, too. (“I will let you draw your own conclusions about what you think that means,” he said.)

There will be a big shortfall in revenues this year – according to your revised estimate in April, by as much as $50-$200 million.  What is the City going to do to close that gap?

Galperin said the revised revenue forecasts this year are really a “guessing game,” because there’s simply no precedent for the kind of immediate economic shutdown we faced this year, which is not really the same as the kind of recessions we’ve had in the past.

So Galperin said the city has developed three new budget scenarios, figuring on $300-$600 million less in revenues than the originally forecast numbers (though he said the Mayor’s own forecast is more optimistic than any of Galperin’s own projections).   So the budget the city has adopted is referred to now as a “placeholder budget,” because it clearly will “be subject to change” as time goes on.

As for how we fill the budget gaps, Galperin said we can adjust some expenditures, such as encouraging more city employees to retire (though that will affect the ability for the city to deliver the services those employees provide).   Also, although no more furloughs for city employees are currently being discussed, that is another option.  And some services can also be postponed, while other department budgets (including his own) have already had “significant haircuts.”

Finally, Galperin said, as he mentioned earlier, the city can use some of its reserves, and maybe spend some money from the Special Funds.  In addition, he noted, there has been a “significant infusion of federal dollars” – $694 million so far, which will likely rise to $750 million, but that money is earmarked for expenditures directly related to COVID-19 (though there are a lot of those).  Beyond that, Galperin said, much will depend on the political “landscape” after the November election, and the city will continue to look at both its revenues and expenditures for solutions.

Why is Neighborhood Council system important?

After Moser noted that Galperin was the first elected official in Los Angeles to have come out of the Neighborhood Council system, Galperin said, “I’m a big believer in the Neighborhood Council system because that’s what grass roots politics is supposed to be about,” especially in such a large metropolis with huge city council districts. People on a more local level, he said, “really understand what their neighborhoods look like.”  And he noted that Neighborhood Council engagement has actually gone up during the pandemic, with more people attending NC meetings now via Zoom than they did in person before COVID-19.  “Which is a good thing,” he said.

Galperin said his own interest in the city budget was sparked years ago when he got a letter from the city explaining that his street would not be paved any time soon, and he got curious about where the city’s money comes from and where it goes.  So he eventully became a Neighborhood Council Budget Advocate, chaired a couple of city financial commissions, and then ran for Controller…and won.  It’s a job he loves, he said, because it’s all about using the resources we have to serve the people of Los Angeles.

For more ciny finance infomation, Galperin recommended checking out http://www.lacontroller.org and its “wealth” of information, or writing to Christina Ibarra at the Controller’s office, at [email protected].

Jack Humphreville

What’s your background and how did you get involved with city budget issues?

Humphreville, a former investment banker and owner of the Recycler, said that as a businessman, he first got interested in the LADWP and and its “unfunded” pensions.   So he started going to DWP board meetings, which eventually led him to provide advice to the DWP, and to start attending city budget meetings as well.  “And I think that, quite frankly,” he said, “I have a better knowledge of it than most people sitting around the toilet seat – excuse me, the horseshoe.”

Who are the Budget Advocates and what do they do?

Humphreville explained that there are 36 Budget Advocates in 12 regions around the city, who are budget representatives for the 99 neighborhood councils around the city.  The Budget Advocates meet twice a month and report back to the Neighborhood Councils to help them and their stakeholders better understand the city budget and its issues.   This year, Humphreville said, the Budget Advocates are really focusing on equity issues for different areas around the city.

What stood out to you in Controller Galperin’s remarks?

Humphreville said he wishes Galperin had been a bit more specific in his remarks, but that in general, Galperin “has done a marvelous job” as Controller, especially with his online dashboard and audits of specific issues such as homelessness.  “He took an unbelievable amount of crap for it from..City Hall,” Humphreville said, “because he showed that average [homeless housing] units are about $500,000 a pop, which is ridculous – that’s more than a single family home, for crying out loud.”  Humphreville said he also appreciates that Galperin is “much more direct than other politicians,” and his one big disappointment is that Galperin will be termed out soon..although he will be running for state controller next.

We are in a deficit situation – how did we get here, and what do you see as the major issues with that?

As Galperin also noted, Humphreville said that this year we have a placeholder budget, but it’s still “significantly” affected by last year’s labor agreements.  Humphreville contended that even last year’s budget, which was “theoretically balanced,” actually had a $150-$200 million shortfall becuase of labor and pension commitments.

What are the major labor unions in the city, and whose job is it to negotiate with them?

Humphreville said there are three sets of city unions, representing firefighters, police (“sworn employees”), and then a coalition of unions representing other city employees (“civilians”).  He said laobr negotions are conducted on behalf of the city by the Executive Employee Relations Committe (which is made up of five City Council members), with the help of the City Adminstrative Officer. But Humphreville said he feels the city negotiators “gave away the store” in the last round of talks last year, which will tip us from a balanced budget to being more than a billion dollars “in the hole.” And Humphreville says the city negotiators knew that would be the result…which is”fiscally irresponsible.”

What is the day to day impact of a budget deficit on our lives?

Humphreville said the most obvious and immediate effect will be a huge “dimunition” in city services, such as urban forest management, sidewalk repair, potholes, park bathroom maintenance, 311 service,  and more.

What is most important in labor negotiations?

Humphreville said he’d like to see two things in future labor negotiations:  more transparency (simply because “it’s our money” the city is negotiating with)… and that any new contracts not lead to future deficits.

What are the unions’ arguments for why negotiations should not be more open?

Humphreville said the city and unions resist more transparency because there are delicate personnel decisions being made in the process.  But also, he said, another issue is that “it’s not an arm’s length negotioation,” because public employee unions do contribute to the election campaigns of the people who sit on the city negotiating committees…so neither side can “go at it” as toughly as negotiators in other kinds of businesses.

What is the hierarchy of decision-making for the city budget?

Humphreville said that because Controller Galperin does write city checks, he does have some power – such as when he refused to write more checks from DWP trust funds to DWP unions…and when he decided to stop paying Jose Huizar, who stopped coming to work after being charged in an ongoing corruption scandal.  Aside from that, however, Humphreville said City Council is really in the “driver’s seat” when it comes to the budget, along with the Mayor.  Other elected officials, such as the Controller and the City Attorney, have much less say in budget matters.

How are budget cut decisions made?

Humphreville said he would actually like more transparency in that area, too.  For example, he said, 16,000 people were furloughed (working just 9 out of 10 days) in certain departments this year, while other departments – particularly those involved in public safety, were exempt from the furloughs.  But no one really knows how they decide who gets furloughed, and which departments face the biggest furloughs or budget cuts when those happen.  “I think the taxpayers, Budget Advocates have a right to know how [city officials are] going to allocate their money” before the budget is released each year on April 20.

How does the size of LA affect the buget?

According to Humphreville, it’s not the size of Los Angeles as much as the metropolis’ character as an amalgam of several very different cities – the wealthy westside, the less wealthy areas to the south, and the Valley.  Even so, though, he said managing LA is still easier than governing many other cities, such as New York, Chicago or Boston, because the city of Los Angeles does not run Metro, many social services, the Sheriff’s Department, or LAUSD, which are either run by the county, or are independent entities.

But Humphreville said this also leads him to wonder why things are still “screwed up” here.  Why do we still have a budget deficit?  Why do we still have deferred maintenance for things like potholes and sidewalks?

Why are pensions so important to the budget?

Humphreville explained that the city has two pension plans – one for sworn employees (LAFD, LAPD) and one for civilians.  But those pension plans are only about 70% funded…so every year the city has to make up that missing 30%. The assumption, he said is that city income will rise about 7% per year, and can be used to make up the pension debt. But he said many financial experts think the income potential is only more like 6% right now, and the amount of money needed is going up each year, much faster than revenues are rising.

What are your biggest budget concerns?

Humphreville said equity issues – inclucing things like affordable housing – are at the forefront of many people’s attention right now.  But he said his biggest concern is that the city live within its means.  “If you don’t have any money, you can’t do anything,” he said. So he thinks the city needs a long-term plan to fund both pensions and deferred maintenance – which will probably take “multiple generations” to fix.  In addition, he said, he thinks the city’s unions have too much say at the moment in personnel costs.  And his third concern is the “pay-to-play corruption at city hall” – which he speculated is “much more systemic” than the few people who have been charged with misdeeds so far.

Concluding Remarks

At the end of the conversation, Moser reminded audience members that anyone can attend Neighborhood Council Budget Advocates meetings, or join the group itself…and that people should also follow and get involved with their local Neighborhood Councils (see http://www.empowerla.org for more information).  Local residents can also follow the GWNC on social media.

Finally, Moser said she and the GWNC will also be doing more forums like this one – the next will be Civics 101 on September 23.