With lawmakers in Washington, D.C., rejecting a plan to bail out U.S. financial institutions, Los Angeles County and city officials braced Tuesday for the local impact of the economic crisis. At the direction of the county Board of Supervisors, finance experts in the county’s chief executive office have spent the past week identifying what programs can be delayed to cut new spending. The supervisors will also consider a county hiring freeze as well as the possibility of consolidating unprogrammed money into a savings account to act as a rainy day fund, according to county Supervisor Zev Yaroslavsky.
“We need to insulate ourselves as best we can against what’s coming,” said Yaroslavsky, who called the situation “the perfect storm.”
Nineteen percent of the county’s almost $22 billion in projected revenue for the coming fiscal year comes from federal funding, which could be jeopardized by the crisis. That, however, is only the tip of the iceberg, officials said. When property values slump, property tax revenue—another major source of county funding—dives.
Tough times also mean a decrease in sales tax revenues, as people feeling the strain start pinching pennies and spending less. The crisis could also result in a decrease in funding from the state, which has already cut $128.6 million in funding to Los Angeles County, county CEO William Fujioka announced last week. While grappling with the loss in revenue, the county will likely face an increase in demand for its services, county officials said Tuesday.
“The problem with county government is that when the economy gets worse, people’s reliance on the county government goes up,” Yaroslavsky said.
Welfare programs and social services in particular will feel the added strain, he said. Fujioka said it was too soon to tell if service cuts are imminent.
“Right now, we’re watching it carefully,” he said.
County Treasurer Mark Saladino is drafting a report on the potential impact of the crisis on county investments, especially its retirement plans, Fujioka said. That report was expected to be complete later this week, he said. Supervisor Gloria Molina expressed concern about the impact of the financial crisis on the county’s many small businesses, which rely on the ability to borrow money to do business.
“This has huge implications for us at the county,” Molina said.
Molina said she had mixed feelings about the proposed federal bailout of Wall Street, in part because she “worried about putting it back into the hands of people who have failed us before.” Supervisor Yvonne Burke, who was on her way back from Washington, D.C., had an opportunity to speak with House Speaker Nancy Pelosi about the bailout proposal last Thursday. Burke was in Washington as a member of the newly established Office of Congressional Ethics within the House of Representatives. She praised Pelosi’s efforts in working on the bailout proposal.
“I was impressed by what she’s doing,” Burke said, adding that the bipartisan effort “should have made it acceptable to everyone.”
Supervisor Michael Antonovich opposed the bailout plan, claiming it would reward Wall Street’s poor behavior, according to spokesman Tony Bell. At City Hall, meanwhile, Councilman Bernard Parks, chair of the council’s Budget and Finance Committee, said he expects unemployment to increase and new construction to slow down in the city of Los Angeles.
“If they can’t develop, then you’re going to find this issue of unemployment on the rise,” he said. “With unemployment, the cycle of the economy will continue to drop, continuing the cycle of people not being able to pay their bills so foreclosures will continue,” Parks said.
Renters, especially in small multi-unit buildings, will also be impacted by foreclosures, Parks said.
“Most of them are the last to know that their landlord or building owner have had their apartment foreclosed on,” Parks said.
The city’s revenue from sales, property and business taxes is expected to drop. Last week, Mayor Antonio Villaraigosa said he expects to face a $400 million deficit in the next fiscal year. Villaraigosa urged Congress today to take immediate action.
“This crisis is no longer about Wall Street or Washington politics. It’s about families and small businesses in small towns and big cities across the nation,” Villaraigosa said.
If the federal government fails to act, “tax revenues would plummet and construction projects would be delayed or canceled. Bonds would become more expensive and pension contributions would go through the roof,” the mayor said.