Cities, L.A. County looking to raise fees to fill budget gaps.

Local officials throughout L.A. County are putting out the word that higher fees or taxes could be in the offing, the result of increases in government pensions and health care costs.

The fees under consideration would hit a variety of businesses, including those with county health permits, commercial property owners in Los Angeles, L.A. apartment landlords planning condo conversions and water users in Santa Monica, to name a few.

In Los Angeles, a wholesale review of city fees is under way to determine if they are in line with rising service costs that will put pressure on Mayor Antonio Villaraigosa's pledge to cut spending.

For the most part, the fee hikes being considered are relatively modest. But they add to what many consider an inhospitable business climate, especially in the city of Los Angeles. "Businesses are getting nickel-and-dimed," said Larry Kosmont, an economic development consultant who publishes a survey on business costs in cities around the country.

Ironically, the fees and taxes come at a time when the booming real estate market is pumping up government coffers. Nonetheless, pension and health care costs are rising faster than revenues, causing local governments to either cut costs or to raise fees.

Over the next five years in Los Angeles, the cumulative deficits could top $900 million if no actions are taken, according to a report from Chief Administrative Officer Bill Fujioka. The shortfalls would start with $225 million in the 2006-07 fiscal year, beginning next July 1.

Fujioka said the city's pension fund investments lost money several years ago after the drop in the stock market, forcing the city to dip into its general fund to maintain the system's reserves. In addition, salaries continue to go up, as have health care costs, energy expenses and materials costs.

Shortly before he was scheduled to take office last week, Villaraigosa ordered a review of spending in all departments, with an eye towards some mid-year cuts. On an airing of "Which Way, L.A.?" on KCRW-FM (89.9), Villaraigosa's new budget chief, Marcus Allen, deflected questions about whether fees or taxes would have to be raised, noting that the first priority was to find waste and inefficiencies.

Allen would not elaborate and a spokeswoman For Villaraigosa said late last week that neither Allen nor Villaraigosa would comment on the subject until after Villaraigosa assumed office.

"Everyone wants to know whether Villaraigosa will hold the line on expenditures," said Stephen Frates, senior fellow with the Rose Institute of State and Local Government at Claremont McKenna College. "The pressure on him from the public employee unions to pass these fees or stealth taxes will be tremendous."

But both Fujioka and City Council Budget Committee chair Bernard Parks suggested that one way to achieve efficiencies is to make sure programs that are supposed to be paid for with user fees are not being subsidized by the general fund.

"One of the requirements is to get full cost recovery for city services that were intended to be self-supporting," Parks said. He said the cost to provide services like building plan checks or apartment inspections goes up every year, while the user fees intended to support those services stay flat for years at a time.

Search for fees

Already, the L.A. Department of Water & Power has proposed a 4.3 percent across-the-board hike in water rates, on top of the 11 percent rate hike that went into effect last week. The City Council has ordered an outside consulting firm to review the need for a rate hike.

Parks said the single biggest city subsidy is residential trash collection, where only a small portion of the cost is picked up by garbage can fees. The annual subsidy has reached $209 million and could go higher next fiscal year as landfill gate fees are expected to increase.

Business lobbyists have expressed concern about the possibility of new trash fees to fund expanded commercial and apartment recycling programs. So far, city officials have not said how these new programs would be paid for.

Parks suggested that the city should consider ending the practice of waiving fees on for-profit corporations that hold special events on city property or city streets.

In a recent memo to Villaraigosa, city housing director Mercedes Marquez suggested imposing additional fees on apartment owners planning to convert their buildings to condos as a way to stem the loss of affordable housing units as landlords leave the federal Section 8 subsidy program.

This proposal has already sparked opposition from the L.A. Area Chamber of Commerce.

"Placing new fees on the creation of new housing units is counterproductive, especially when housing prices are out of reach for so many people," said Rusty Hammer, president and chief executive of the chamber.

Overall, Hammer said that if the fees "are reasonable and can be justified by the direct services provided to business, you will find the business community supporting those fees. But if they are unreasonable, or the city hasn't taken sufficient steps to review the salaries and fringe benefits for staff providing those services, then the business community will not support them."

Other government fees

Meanwhile, thousands of businesses in unincorporated Los Angeles County that need public health licenses or permits will likely see fee increases in the next 90 days. Last week, the County Board of Supervisors approved 5 percent fee increases on businesses ranging from laundromats to day care centers. For example, the fee for a supermarket at least 6,000 square feet in size would rise to $965 from $919, while a restaurant with a seating capacity of 120 would pay $1,073, up from $1,022.

The hikes would generate $3 million to plug a hole in the environmental health enforcement budget.

In Santa Monica, the City Council last week approved a budget that contains rate hikes for water and trash collection. The council will now consider how much the increases will be and when they will take effect. Last month, councilmembers were informed that the city's water utility has run through nearly all its reserves, and that rates will have to increase 40 percent to replenish them.

The council last week approved a 6 percent hike in water rates to take effect immediately; Santa Monica City Councilman Bob Holbrook said an additional 10 percent rate hike is likely to be in place by the end of the year.

Also last week, Los Angeles Unified School District board members considered a plan for a $150 parcel tax on all residential and commercial property owners in Los Angeles and dozens of adjacent cities within school district boundaries. The tax, which needs two-thirds voter approval, could make it onto the Nov. 8 special election ballot alongside a $3.8 billion school facilities bond measure for the district.

LAUSD board member David Tokofsky said he introduced the proposal as a result of a ballot initiative backed by Gov. Arnold Schwarzenegger that he contends would throw out the minimum spending requirements voters enacted with Proposition 98, thus depriving the LAUSD of hundreds of millions of dollars a year in state funding.

Tokofsky said he consulted with the L.A. Area Chamber and was persuaded to propose a flat parcel tax instead of taxing commercial property more than residential property. Without full business support, he said it would be virtually impossible to garner two-thirds voter approval.

Kosmont said he expects further fee hike proposals to emerge from local governments in the months to come as they grapple with skyrocketing pension costs.

"These pension costs have locked cities into huge funding commitments. With it being so difficult to pass tax increases, cities and other local governments are going to have no choice but to pass these costs on to service users," Kosmont said.

Rising Costs

Projected budget deficits in City of Los Angeles
(in millions)

2006       $0
2007     $225
2008     $242
2009     $232
2010      $94

Years ended June 30.

Source: L.A. City Office of Chief Administrator

Note: Table made from bar graph.