Budget Advocate Jack Humphreville Asserts LA’s City Finances are a Mismanaged Mess

Begin by sharing your longstanding concerns about the fiscal health of the city of Los Angeles. 

Jack Humphreville: It's sort of like pounding your head against the wall when you're dealing with these guys at LA City Hall. 

Since Eric Garcetti became mayor, we've had record revenues, and yet prior to the virus, we were talking about a deficit. Last fall, the City Council and the Mayor agreed to new labor agreements, which blew a massive hole—$1.5 to $2 billion—in the budget for the next 4 to 5 years. Prior to these labor agreements, we had a balanced budget, and for the following 4 years we had a $200 million surplus. We overcame the structural deficit, but as a result of the labor agreements, this year’s budget went from being balanced to being about $150-$200 million in the hole. The projected cumulative deficit over the next four years is about $1.2 billion. 

Now, the City Council is blaming everything on the virus, which is completely wrong. The problem is that we entered into these labor agreements. Paul Krekorian, chair of the Budget and Finance Committee, refuses to take responsibility for the Committee's malfeasance on the matter, and it's very frustrating.

They talk about how great the Reserve Fund is, but it should've been double the size given the city’s record revenues. We should have done something about pensions or fixed our infrastructure; we have some of the worst roads in the country. 

Elaborate on the transparency to the public of the City’s fiscal records?

I will give the City credit for the Council File Management System, which is a lot better than others—especially the County and the State. Once these documents are published, they’re easy to get ahold of them for the most part. The City Administrative Office does a pretty good job being open and transparent about what’s going on.

What is frustrating is that the decision-making process is all done behind closed doors. You only find out what's happened after it's happened, so we get very little input. 

How do they make decisions, especially when it comes to dealing with the public-sector labor unions who have a lot of sway because of their political clout? There's a basic conflict of interest here in that the leaders of the public-sector labor unions are the campaign funders of those running for council. Then, the labor unions sit across from them when negotiating the labor agreement; that is not arm’s length. 

This is not like the private sector where UAW is bargaining with General Motors. This is the City Council—the Executive Employee Retirements Committee—sitting there across the table from their good friends in labor who just dumped millions of dollars into their campaign coffers. 

Jack, address the impact, if any, of the pandemic on good governance-on transparency in City Hall?

The first problem we have with the city budget is that Eric and Herb Wesson voted to approve these labor agreements with the cops and the firefighters that blew a $2 billion hole in our city budget. The budget was already stressed, then the virus came along.

What's happened is that in this fiscal year (ending June 30, 2020), the hotel tax and sales tax have just disappeared, so the city is running a huge deficit. As a result, they've had to raid the Reserve Fund for almost $300 million, where it only used to be $400 to $450 million at the beginning of the year. Financially, the virus has been a real horror show. Eric's budget—which the City Council adopted more as a placeholder, make-believe budget—is about $200 to $400 million overly optimistic about its revenues. That's going to have a major impact.

As for the virus and transparency, I don't really know. When you go to the City Council, you get two minutes to comment and they don't listen to you—in large part because they have to put up with all of these jokers who are swearing and yelling. But maybe it's better to look these people in the eye. It's very tough to follow online, but I think our CAO is doing a very good job of publishing data. Do I think hiding behind the virus and the lockdown of the city lets them get away with a lot more? I don't know.

On the other hand, the financial impact of the virus is really limiting what they can do. They just don't have the financial flexibility to do anything other than scrape together and balance the budget. If they defund the cops, that's just going to pay the bills and might barely be able to fund the budget, much less fund new initiatives or all of these social justice causes that have been supported by Black Lives Matter or the People's Budget. By the way, the People's Budget is completely aspirational, it has no numbers in it, and what they don't tell you is that it's going to require massive tax increases.

This interview takes place on a day when the LA Times published an Op-Ed by former councilman Michael Woo titled, "Corruption in City Hall is nothing new. So, what are we going to do about it?" Did the former city councilmember ask the right question: Who should lead reform in Los Angeles?

I haven't read the article yet, but for anything to get done you need a leader. Who's going to be the leader of the parade here? A couple of years ago, we had Richard Riordan who took on City Hall. We had a new charter—granted there are probably some holes in it—but that was a real fight. You have to have someone leading the parade here, and I don't know who that person is going to be.

We live in a one-party system, there might be a few spats within the Democratic Party, but Republicans are a dwindling minority. During the last election, the city went 80 percent for Hillary Clinton versus Trump—not that Trump's a good Republican.

In the almost four decades TPR has been published, it’s never been a journalistic challenge to secure an interview with the President of the LA City Council. That’s not true today. Should our failure be taken personally, or is unavailability emblematic of the many unmanaged challenges the Council is grappling with today?

I think Nury means well, but I don't think she has the chops to run City Council the way Herb Wesson or Eric Garcetti did. Herb was phenomenally effective, although we may not agree with some of the outcomes, especially on fiscal matters. I just don't get the sense that she's really in charge, and my gut feeling is that Herb is still pulling a lot of the strings.

What signal does the arrest of Councilmember Jose Huizar, after a years-long federal investigation of corruption at LA City Hall, send the general public about the integrity of the City Hall’s policy and its budgetary and policymaking processes?

This whole Huizar situation has been brewing for years, with rumors that the FBI was sniffing around City Hall. This cancer of Jose Huizar must have been known to Eric Garcetti and Herb Wesson. It was blatant and I blame them; Huizar happened on their watch. For example, I read through of the 116-page affidavit put forth by the FBI, and it's a page turner. The movie rights are going to be worth a fortune; it's like the movie, The Wolf of Wall Street. 

Starting in 2012 or 2013, this guy was extorting money from all of these real estate developers and billboard operators in order to receive political favoritism. Going beyond what Huizar did, I think Eric and Herb allowed it to thrive. Somebody ought to be asking for their heads. Between the Huizar corruption and the fiscal mismanagement of the city, these two guys don't deserve our support or respect.

Woo’s LAT opinion piece also notes that the city of Los Angeles has experienced public corruption before – both in the Shaw administration and even the Bradley administration. The Bradley Mayorship, of course, moved in response to create the Cowan Commission, which led to a ballot measure to enact political reforms. Should the City Council now appoint an inspector general, as Woo’s OpEd suggests, to press for a whole new oversight regime related to transparency and to better assuring that public interaction with the Council and Mayor is ethical?

Very simply, yes. In what shape or form that would be, I don't know. Austin Beutner and Mickey Kantor came up with the idea of the Office of Transparency and Accountability to oversee the city's finances. David Ryu called for campaign finance reform back when he first started office back in 2015, and that went nowhere. 

Then, Huizar was raided by the FBI and we got a little bit of action, but Herb Wesson diluted the hell out of it, and it doesn't kick in until the primaries in 2022. Ryu also called for campaign finance reform and for the elimination of the 245 (e), which allows the City Council to insert itself into the position of the Planning Committee and make all sorts of changes in City plans. Ryu's has also called for an inspector general for all of the real estate developers.

The issue I have is about who would appoint the inspector general. With a bunch of people who are beholden to the political process, are they truly going to be independent? Do they have the level of knowledge necessary? Just look at the city's underfunded pension plans, and yet Eric is nominating people who don't know anything about pensions. It's the city's largest single financial obligation—anywhere from $15 to $20 billion—it's a major liability. 

What is the audience for examining the city’s budget and process for making critical budget decisions that require balancing service need with revenue?

My articles and blog get somewhere between 20,000 to 25,000 page views on some of the more controversial articles. The problem is there is neither the civic or political leadership in the community to take on City Hall - which is a pretty ferocious animal.

I'm one of the Neighborhood Council Budget Advocates, and we've come up with a proposal for what I call “Radical Transparency,” which includes a couple of components.

 Instead of introducing the budget on April 20th, it should happen February 1st. Labor negotiations should be open and transparent, and labor agreements should not result in any deficits. We'd like to have a review of the pensions, so we can better understand them and develop recommendations to eliminate the unfunded $15 billion pension liability over the next 25 to 50 years.

We'd like multi-year budgeting, a ten-year infrastructure plan, and to benchmark the efficiency of the city's operations. How do you build the Reserve Funds up to 10 percent of the General Fund?

Finally, we've been asking for an Office of Transparency and Accountability, similar to the what the LA2020 Commission did back in 2014—that would have the ability to oversee the city's finances and related matters, importantly in real time, not weeks or months after everything's happened.

I think there is actually a reasonably decent audience for it. The Times—which is our paper of record—has written a few articles on it; but they should be all over City Hall like a cheap suit.  

Lastly, what's your prediction for 2021? Are you optimistic, pessimistic, or holding your breath?

Probably more pessimistic. One of my frustrations is that the Budget and Finance Committee, the Mayor, and the City Council are bouncing from pillar to post. They just look at this year and the upcoming year; they don't look down the road at all. Over the next four years, from 2022 to 2025, the city is projecting a budget shortfall of $765 million, and that's under optimistic assumptions.

That shortfall also fails to take into account future raises in the outer years, the need to fix our infrastructure, build our reserves, or properly fund the pensions. My calculation is that we're probably short about $1 billion a year and the city isn't addressing these issues in a proper manner.

Come November, it's going to be an absolute donnybrook, not because of the presidential election but because we have the Split Roll on the ballot. It's a $12 billion ticket statewide, and the city would get $250 million, which might save a little bit of their bacon but that's going to be a hell of a fight.

You also have other issues on the ballot, ranging from the repeal of Prop 209 Affirmative Action, rent control, Uber and independent contractors, bail bonds, parole, the stem cell bond. I don't know whether the Split Role will pass and alleviate some of the issues, but I'm opposed to the split-roll tax for a variety of reasons. The main one being that I don't think the City Council deserves any more of our money until it cleans up its act. It's as simple as that.