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Budgets

BUDGETS/28inches/1stjc/mark2nd

By HOWARD FINE

Staff Reporter

The $12 billion-plus Los Angeles County budget that comes out this week is likely to contain a bonanza for business: tens of millions of dollars in new contracts to be awarded in the 1998-1999 fiscal year, which starts July 1.

The new contracts are expected in three areas: the child care component of the county’s welfare-to-work program; repairs to many of the county’s aging buildings and facilities; and fixing the county’s computer system to avoid problems with the “Year 2000 bug.”

“A lot of work in these areas will go to private companies,” said Richard Popper, budget aide to Supervisor Zev Yaroslavsky.

Already, the county Board of Supervisors has approved $282 million in private child care services for mothers entering the workforce under the county’s welfare-to-work program, said Otto Solorzeno, budget director for the county Public Social Services Department.

County Chief Information Officer Jon Fullinwider said he expects about $5 million in contracts earmarked for solutions to the Year 2000 problem; that’s out of a total estimated cost to address the problem of $97 million. (Most of the rest will be done through new hires and reassigning of current staff, he said.)

The county would not release more precise figures before the budget is released this week; also, in some cases, the amounts of the contracts have yet to be determined.

Outside of these new contracts, the proposed county budget is not expected to contain many changes in fees or services that will directly impact business, Popper said.

Also due out this week is Mayor Richard Riordan’s proposed $3 billion 1998-99 budget, which is not expected to address business tax-equity issues despite Riordan’s pledge three years ago to make business tax reform a top priority.

“Tax equity and major government structural reform will not happen as part of the budget this year,” said Kelly Martin, deputy mayor for policy and finance.

Those two issues are being addressed in separate reform efforts: the tax-equity study and the city charter-reform process.

“The mayor has made both of these issues top priorities, but they are complex issues that cannot be fixed overnight,” Martin said.

Recommendations from the commission looking at the tax-equity issue are due out June 25. Some of them may be subject to approval by the City Council; others may have to go to the voters, probably a year from now.

The charter-reform effort is also likely to culminate a year from now on the April 1999 ballot. For local business leaders, the slow pace of these reforms is frustrating.

“I do think the business community will be disappointed that Los Angeles is going through another budget cycle without action on tax equity,” said Allison Winter, president and chief executive of Northern Trust Bank of California and this year’s chairwoman of the Los Angeles Area Chamber of Commerce.

“However, while there is still frustration out there over this lack of progress, I’m not getting the same sense of urgency that I felt on this issue two or three years ago. Perhaps that is why things are moving so slowly,” Winter said.

But these delays especially on business tax equity could come back to haunt L.A. officials, warns Larry Kosmont, a principal in the real estate and land-use consulting firm of Kosmont and Associates.

“If you keep ignoring this issue, L.A. will continue to be uncompetitive, especially when it comes to attracting retail firms to the area,” Kosmont said. “This is incredibly short-sighted. The retail sales tax is one of the main revenue generators for cities. When L.A. officials complain that their revenue base isn’t growing quickly, that’s in large part because retailers are choosing to locate outside city borders.”

Overall, the budget picture for both the city and the county is expected to be a little less bleak for the 1998-1999 fiscal year than in past years. That’s because property-tax receipts, one of the key underpinnings of both budgets, are finally beginning to tick up as local real estate activity and prices have turned around from the depths of the recession.

“The city’s revenue picture is definitely improved,” Martin said. “Property-tax revenue is looking better and we are seeing more in sales-tax revenues.”

Martin would not release any detailed revenue projections before Riordan formally announces his budget this week.

Meanwhile, County Administrative Officer David Janssen, in his most recent county budget forecast report submitted to the Board of Supervisors in January, said he is expecting an additional $27 million in property-tax revenues and $22 million in sales-tax revenues over last year’s levels. Revised revenue projections are due out with the release of the county budget this week.

The rebound in tax receipts, however, is not going to be enough to eliminate the serious structural budget deficits that is, an unresolved gap between revenues and expenditures faced by both the city and the county. The city has been running a structural budget deficit in the neighborhood of $100 million a year, out of its general fund budget of nearly $3 billion. The county has had to deal with a structural budget deficit of $300 million to $350 million a year, out of its $12 billion budget.

Both the city and the county have been relying on temporary fixes and outside aid to close these gaps. The city, for example, has used federal grant dollars to boost its police department, while the county has been relying on $300 million in excess earnings from its employee pension fund.

But federal funding for the new police officers expires next year, while the computer programming errors that led to $12 billion in under-funding of the county pension fund is likely to wipe out most, if not all, of the excess investment dollars from the pension fund.

On the cost side, Martin said the city has had to come up with an extra $60 million to fund 5 percent salary increases for police and fire employees. Even more money has been needed to fund salary increases of between 3 percent and 4 percent for most city employees.

“These are mandated by multiple-year contracts, so there’s little room for cuts here,” she said.

In an effort to save costs, Martin said the mayor’s staff has resorted to zero-based budgeting on several city accounts.

In his January forecast to county supervisors, Janssen said the county is facing $270 million in increased costs to the general fund and $216 million to the health services budget, for a total of $486 million in higher costs.

Most of the higher health costs were expected to be offset by an additional $179 million in funding from the state Department of Health Services. He also said the county plans to find $197 million in additional savings to help balance the general fund.

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