LAPD Buildup Clouds Budget

When he unveiled the new city budget last week, Los Angeles Mayor James K. Hahn promised he could hire 320 new police officers and balance the city’s finances with a responsible regimen of cuts and new fees.

But two analyses prepared for the City Council this week warn that Hahn’s proposed hiring could deepen financial problems for the city in coming years.

That is in part because Hahn proposes to pay for the buildup by spending part of the city’s reserve fund. In addition, the drop in the stock market has forced the city to spend more money on employee pensions, and other costs are rising. With those factors combined, city finance experts warn that, if the council approves Hahn’s budget, Los Angeles could face a shortfall of $190 million to $280 million by the end of next year.

Los Angeles’ annual general fund budget is about $3.5 billion.

“It is clear the city’s budget has a structural deficit,” according to a report released Friday by the city’s chief legislative analyst, who predicted that major cuts and layoffs would be needed in two years without changes to the budget or a boom in the economy.

News of the city’s financial straits triggered anxiety on the City Council, which begins its annual review of the mayor’s budget Monday.

“Starting the ‘04-’05 budget in the red is something to be alarmed about,” said Councilman Nick Pacheco, chairman of the Budget and Finance Committee. “I think the mayor’s office has to give us an idea of how it happened.”

The mayor’s office downplayed the shortfall projection, saying that the forecast is based on several factors that are likely to change, including the amount of revenue coming into the city and the performance of the stock market, which affects the employee pension program.

“This is a snapshot in time of what the condition looks like today if you didn’t change anything, and we all know that that’s totally unrealistic,” said Krista Binder, the mayor’s budget director.

Hahn called the projected shortfalls “a whole bunch of probabilities that may or may not occur. It’s an issue you have to keep an eye on, but we’re living within our means.”

Making the city safer with more police officers, he added, would ultimately enrich both quality of life and the city’s coffers by luring new business to Los Angeles.

“That’s the top priority of government -- to protect the people who live here,” Hahn said.

The council’s monthlong budget hearings promise to be more contentious than last year’s easy approval of Hahn’s first city budget. Although Council President Alex Padilla would not comment, other council members said they would question whether street paving and tree trimming have to be cut, as Hahn has proposed, and whether fee hikes for garbage and sewer services are necessary. And some members said they were willing to consider an increase in the city’s sales tax or a bond to pay for expanding the LAPD.

“This might be the time for people to tax themselves,” said Councilwoman Janice Hahn. “Everything is on the table.”

The new projections have only added to the concern about the city’s financial health. One report, by the city administrative officer, projects that the shortfalls could reach almost $550 million by 2008.

The report from the chief legislative analyst went further, predicting that the city faces a shortfall of almost $600 million in five years. What’s more, the report found that next year’s budget, as proposed by Hahn, might be in the red by $28 million, forcing immediate action to balance the city’s finances, as required by law.

“It’s not a good picture,” said Councilwoman Cindy Miscikowski. “It’s not easy to react in any way but ‘wow.’ ”

Added Councilman Eric Garcetti: “I think we’re universally finding that it’s a lot worse than we thought.”

This year’s budget debate is shaping up as a test of Hahn’s commitment to public safety, the centerpiece of his administration. Since taking office, the mayor has promised to beef up the Police Department, which is about 1,000 officers smaller than its authorized strength of 10,000.

Some council members now worry that the city’s financial challenges may mean that Los Angeles cannot afford the surge in hiring that Hahn wants.

“We need to be extraordinarily careful that, in attempting to meet our present needs, we don’t dig ourselves a hole for the next four or five years that we can’t get out of,” said Councilman Jack Weiss. “I don’t want to reduce the amount of officers, but unless a good explanation is provided as to why the projections are wrong, we may almost literally have to start anew with this budget and do it ourselves.”

This year, several factors have added pressure on the city’s finances. The poor performance of the stock market is forcing the city to subsidize its employee pension program by almost $85 million next year. Workers’ compensation costs -- the money the city pays to cover the medical costs and leave for injured employees -- is expected to go up 10%, to $142 million. In addition, $133 million in federal grants that the city has received to hire police officers will start to run out in 2004, when the city will receive $2.6 million less than the year before.

Another significant new expense would be the 320 new police officers the mayor wants to hire. The new officers would cost the city $65 million over the next two years. In addition, the city anticipates paying $178 million more in Civil Service adjustments over the same time period, of which about 30% could be attributed to the new police officers, according to William Fujioka, the city administrative officer. In his report, Fujioka also projected that Los Angeles must pay $246 million more in employee benefits over the next five years, in part because of the additional police officers.

To help cover the costs associated with beefing up the Police Department, Hahn proposed transferring $102 million from the reserve fund into next year’s budget -- a source of revenue the city cannot count on in future years. Ron Deaton, the chief legislative analyst, criticized using the reserve fund to pay for ongoing expenses such as salaries.

“This is one of the major reasons why deficits are projected starting in fiscal year 2004-05,” he wrote in his report.

Deputy Mayor Matt Middlebrook said that the projected shortfall merely indicates that the city must exercise fiscal restraint next year. The city will be applying to renew the federal police grants, he said, and will lobby aggressively to reform workers’ compensation at a state level. If the economy improves, he added, Los Angeles can stop subsidizing the employee pension program and will see more money coming into city coffers.

Hahn felt he could not miss an opportunity to hire more officers when they were available for the first time in years, he added.

“The last thing the mayor was prepared to do was to have somebody who was willing to join the LAPD who was a qualified candidate and to say, ‘Sorry, we can’t take you, because we don’t have the money,’ ” Middlebrook said.

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Times staff writer Peter Nicholas contributed to this report.