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Official: LA Deficit May Balloon $50M Under Villaraigosa Budget

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LOS ANGELES (CBS) — The city’s Chief Administrative Officer said on Wednesday that the mayor’s looming budget plans could unravel nearly $50 million in savings that would otherwise trim the deficit to $4.1 million in the coming year.

In his upbeat report to City Council, Miguel Santana pledged no more furloughs for the remainder of this fiscal year, but the city’s reserve fund, now at $191 million, needed to be further beefed up.

Santana also wants the council to delay starting a final class of police recruits through the academy until after the start of the next fiscal year to reduce costs, as approved by voters in the form of reduced pension and health benefits.

Although the city cut spending by nearly $1 billion over the past two years, Santana told the council that the city workforce has been reduced by about 4,000, with about 500 layoffs.

L.A.’s workforce was roughly the same size as during former Mayor Richard Riordan’s second term in the mid-1990s, he added.

In his report, Santana cautioned that the deficit for the current year could increase $30 million to $50 million by the time Mayor Antonio Villaraigosa releases his budget for 2011-12 in the coming weeks.

Despite two downgrades last year, he said the city’s credit rating was holding steady, but one more downgrade could prevent the city from borrowing in certain areas. When bond ratings go down, the interest rates charged to the city to float bonds goes up.

“There is a level of anxiety out there,” he said, referring to buyers of municipal bonds.

The projected deficit for the fiscal year starting July 1, however, will be about $350 million, he said.

He said the biggest “driver” of the city’s future deficits will be employee costs — salaries, health benefits, pension — and revenues are expected to keep dropping. Department of Water and Power cash infusions are expected to be reduced, he said.

By fiscal 2015-16, the city’s pension cost is expected to grow to $1.2 billion per year, he said.

“Ultimately is what is needed is a new revenue source,” he said.

Avoiding more furloughs would be unlikely, he said, without some concessions from city employee unions.

(©2010 CBS Local Media, a division of CBS Radio Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. Wire services contributed to this report.)

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