When the proposed City of Los Angeles and L.A. County budgets were released last week, government officials scrambled to explain how they would pay for such services as police protection, health care and libraries over the next year.
But what few people talked about was how much money the city and county expect to haul in over the next year through such revenue-generating sources as business license taxes, property taxes, document transfer fees, sales taxes and vehicle license fees.
“The five-year forecast of the budget has dramatically improved,” Mayor Richard Riordan said in his 1997-98 $2.59 billion spending plan.
Though the city has a projected $101 million shortfall in the 1997-98 fiscal year, Riordan proposes to make up the deficit without any new taxes and fees, instead raising the revenue through a series of steps, including “reimbursing” the general fund for money spent on wastewater treatment and allocating public transit funds for street paving.
While all categories of locally generated revenues had increases projected for the 1997-98 fiscal year, most of those gains were minimal and do not bring revenues to pre-recession levels.
“Basically what it does reflect is that the local economy is in a recovery mode,” said Jack Kyser, chief economist for the Economic Development Corp. of L.A. County. “The economy is coming back still not to the old peak levels but still coming back.”
Over the next fiscal year, the city expects to bring in $477 million in property taxes, $473 million in utility users taxes, $380 million in licenses, permits, fees and fines, $301 million in business taxes, $294 million in sales taxes, $148 million in state motor vehicle license fees, $81 million in transient occupancy taxes and $58 million in document transfer taxes.
One example of the modest economic recovery, said Marc Girard, a chief administrative analyst with the city, is the $294 million L.A. expects in sales tax revenues over the next fiscal year.
That amount is a 3 percent increase over this year’s sales tax revenues, but only brings it slightly above the $292.6 million the city made in sales tax in the 1990-91 fiscal year the first year of the recession and still below the $297.2 million the city made in its peak year.
“Now you understand what I mean when I say it’s a modest recovery,” Girard said.
Kyser said there could be other reasons for the slow growth of city tax revenues, which lag considerably behind L.A. County and statewide increases.
The chief reason for the lag, Kyser said, is that some of the L.A. area’s highest sales tax-producing shopping and auto malls are outside L.A.’s city limits, in cities such as Beverly Hills, Santa Monica, Burbank and Glendale.
“There’s a lot of leakage of sales tax revenue from the city to other cities,” he said.
On a county level, revenue gains are also expected to be modest. For example, in the $11.17 billion 1997-98 Los Angeles County budget, approved in principle by the Board of Supervisors last week, property taxes are only expected to grow to $1.148 billion in the next fiscal year, versus $1.143 billion this year.
“In the good old days, it was up 10 to 12 percent a year,” said Chief Administrative Officer David E. Janssen at a press conference last week.
But Kyser said that since most of the county’s budget is composed of “flow-through money” money from state and federal sources, as well as special funds and districts and that locally generated funds account for only 19 percent of the budget, city budgets are much more reliable gauges of the economy.
“The city more accurately reflects the state of the economy than the county,” he said.
Kyser said that he saw problems in the city’s budget, which was proposed by Mayor Richard Riordan on April 18 and is under consideration by the City Council.
He said the budget is too aggressive in some areas such as property tax revenues, where a two percent growth is expected and too conservative in other areas, such as transient occupancy tax revenues, where a five percent growth is expected.
The projected growth in property tax revenues is too optimistic, Kyser said, because the real estate market while improving had not yet fully picked up. Meanwhile, revenues from hotel occupancy taxes may be on the low side, he said, because the tourism industry is looking good for the coming year.
“The tourist business is very strong. Everyone has been very optimistic,” he said, adding that the opening of the new J. Paul Getty museum in the Sepulveda Pass will attract extra tourists to L.A. toward the end of the year.
One area where the city expects to make more money this year than last is in business license taxes. According to the mayor’s budget, there is expected to be a three percent increase in business tax revenues over the next fiscal year.
But Girard said much of the increased revenue will come from the legalization of home-based businesses and increased crackdown on scofflaws who have not registered as businesses with the city.