Revenue Shortfalls Forcing State, County and City Governments to Make Trims
With the state budget in near meltdown mode and government coffers taking huge hits with the fallout from last month’s terrorist attacks, a wide array of state and local services,from senior assistance to road and highway projects,face the prospect of cuts or freezes.
Signs of this new fiscal frugality are everywhere: earlier this month, Gov. Gray Davis ordered almost all state agencies to find ways to shave up to 15% off their budgets. Similar reviews are under way in local governments around the state, including Orange County.
“No one is exempt from cuts or freezes right now,” said Los Angeles City Councilman Nick Pacheco, who chairs the council’s budget and finance committee. While that may not be entirely true,programs directly affecting public safety and emergency response are likely to see spending boosts,it is indicative of the new attitude in state and local government halls.
First on the chopping block are likely to be programs not considered essential for public health and safety, like library services and maintenance of parks and playgrounds.
“These so-called ‘dessert services,’ which impact the overall quality of life but are not absolutely essential, will be the first to be cut,” said Stephen Frates, senior fellow at the Rose Institute of State and Local Government and Claremont McKenna College.
Capital and infrastructure maintenance projects also are likely to be postponed or scaled back. While current transportation funding from the state appears to be secure,thanks to billions of dollars pumped in last year,future funding is uncertain.
One such project is the Alameda Corridor East light rail corridor through the San Gabriel Valley. The state kicked in $40 million for the initial phase of the $912 million project, which helped fund a couple of grade separations. But the project construction authority has applied for $150 million more in state funds; that application’s fate is now more uncertain than ever.
With state and local governments desperate for new revenues, there will likely be increases in fees and taxes.
“Watch for the state and local governments to be really creative in coming up with new ways to exact revenues,” warned Jon Coupal, president of the Howard Jarvis Taxpayers Association. “We’re expecting to see a whole array of user fees and other targeted fees, if not out-and-out tax increases.”
Of course, much depends on how long this economic downturn lasts, as well as what lies ahead on the terrorism front. If the economy turns around by the middle of next year and if the terrorism battle settles down, local governments may be able to ride out the storm with temporary hiring freezes and postponements of capital projects.
But if the economic and terrorism uncertainty linger, local governments will be forced to consider more drastic actions, like cutting existing services and boosting user fees.
Meanwhile, state budget cutbacks pose far less of a threat to city budget coffers than the steep falloffs in sales tax, bed tax and business tax revenues. Anaheim this month was put on Standard & Poor’s watch list because of the steep decline in visitors to that tourism-dependent city since the Sept. 11 attacks.
“We are much more sensitive to the economy,” said David Jones, who tracks city revenue streams for the California League of Cities.
But just behind those three revenue sources are the vehicle license fee payments from the state. If those are cut back, cities could also find themselves scrambling to cover their costs.
Jones said two thirds of all city budgets are earmarked for police, fire and other emergency response services.
“In the current environment, you are likely to see some increases in those areas, as these services are often the ‘first-responders’ to security and public health threats,” he said.
That means cuts are likely to fall first in other areas, such as library programs, “meals on wheels” for seniors, playground maintenance at parks and repairing potholes.
In the city of Los Angeles, Controller Laura Chick agreed that, if any services needed to be cut, these would likely be among the first in line.
“We all want more library and senior services and more recreation programs for children,” Chick said. “But when you look at what is absolutely essential to our survival and existence, longer library hours may just have to be sacrificed.”
What’s more, the city receives numerous state grants for library, senior and parks programs, some of which could be cut. “We are concerned about areas that are grant-funded and are watching this issue very closely,” said Carmel Sella, deputy mayor for intergovernmental relations.
But Sella and other officials note that cities are not yet confronted with such dire choices. n
Fine is a staff reporter at the Los Angeles Business Journal.
