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L.A.'s New Money Woes

By Rick Orlov

October 25, 2001

Hit with staggering losses in revenue, Los Angeles city officials reported on Wednesday that the $100 million reserve fund has evaporated and airport officials announced the start of a fiscal austerity program.

Faced with its own $30 million loss since the Sept. 11 terrorist attacks, the airports department imposed an immediate hiring freeze and warned of the possibility of layoffs next year unless there is a sudden and dramatic turnaround.

At City Hall, officials were warned to avoid any new spending as the city faces the prospect of zero growth in the local economy with near-recessionary conditions.

The $100 million reserve fund left by former Mayor Richard Riordan when he left office June 30 has been spent in the face of sagging tax revenues.

"We are looking at zero growth," City Administrative Officer Bill Fujioka told the City Council.

"What we're recommending is that, with the exception of what would truly be characterized as extraordinary issues, we ask that you not appropriate any further funds from our reserve fund."

The city began the fiscal year in July with $100 million in reserve, but the drop in revenues has reduced that by $60 million. In addition, Fujioka said, the city is refunding $21 million to MCI for overpayment of taxes and taking a $24 million hit for other budget needs or problems.

The other costs include an expected $13 million in spending that had been projected in the City Attorney's Office, nearly $3 million in additional police and fire costs since Sept. 11, and city liability payouts.

"Basically, we are only left with our emergency reserve fund," Fujioka said.

Mayor James Hahn is closely monitoring the situation, aides said.

"The mayor is being constantly updated on the problem and watching spending," Deputy Mayor Matt Middlebrook said.

"That's one of the reasons he created an economic task force that is to release its recommendations next week."

Los Angeles World Airports General Manager Lydia Kennard, preparing for what one economist called a worst-case scenario, sent a memo to her department's 2,500 employees, advising them of steps being taken to try to avoid any layoffs after the first of the year.

"Our organizational vitality is inextricably linked to the overall air transportation industry and our own careful and prudent planning," Kennard said. "An immediate concern was and continues to be that our revenues are down due to reduced concession and landing fees income while expenses have increased significantly because of additional security measures we have had to take."

Kennard already had ordered cancellation of the Van Nuys Airport air show to save $1.2 million and because of security concerns.

In addition, she said she has frozen hiring for 275 vacant positions, halted all nonessential equipment purchases and construction projects, ceased all official travel for conventions and conferences, limited use of consulting services and ordered a top-to-bottom review of all expenses and ways to create new revenue.

Hahn was in Washington, D.C., with the U.S. Conference of Mayors and making an effort to lobby federal officials for financial help for LAX and other airports.

"We're taking this very seriously," said Middlebrook. "The mayor pushed to get the parking open as quickly as possible to make it more convenient for the public.

"We expect a report from the mayor's task force next week on what else we can to do to make LAX more user friendly and what we should be doing to help the Los Angeles travel and tourism industry. The mayor wants to send a message that L.A. is open for business and encourage people to come visit."

Airport Commission President Ted Stein said the department is entering a new economic world as a result of the Sept. 11 attacks.

"Our revenue stream has decreased, our passenger load has decreased and the central terminal for parking was closed while we had to pay more for security," Stein said.

"Fortunately, the airport has been well run and we had a surplus. But with losses of $30 million a month, you can't continue to operate. We are eliminating all the nonessential services and freezing jobs. We hope our revenues will come back as people feel more comfortable on airplanes."

Kennard's orders came as LAX officials confirmed the impact of the Sept. 11 attacks on air travel, which included an unprecedented two-day shutdown of the airport.

Passenger traffic at LAX was down by 33.1 percent, with cargo operations experiencing a 28 percent decline. Ontario Airport operations had a 28 percent drop in passengers and 12.5 percent in cargo.

"(Kennard) is taking the prudent course," said Jack Kyser, chief economist of the Economic Development Corp. of Los Angeles County. "Until there is some sign that people are coming back to the airport, she has to prepare for a worst-case scenario.

"From what we've seen, people seem to be avoiding LAX while there has been an upsurge in airports such as (Orange County's) John Wayne. It's going to take some time to build up public assurances. People are still rattled."

The attacks have already had a major impact on the local economy, both draining tourist dollars and wiping out scores of jobs, Kyser said. The ripple effect from the attacks will be felt in every sector, from airline workers to food service, he said.

"We've heard that the hotels have lost 3,000 to 4000 union workers, probably 4,000 to 5,000 with nonunion and that at the airport they've cut 10,000 to 12,000 jobs," he said. "That's a pretty major hit. It is not a pleasant picture."

LAX spokeswoman Nancy Castles said the department also has been working with the airlines and that there has been a gradual increase in traffic.

"Immediately after Sept. 11, we were seeing passenger loads of less than 20 percent," Castle said. "That's up to 60-65 percent now, but it will be some time before we get to the better than 80 percent loads (seen) before Sept. 11."

Another factor impacting the LAX economy is that the airlines have had an average drop of 20 percent in the number of flights -- from a daily average of 2,500 operations to the current level of 1,900.

Staff Writer Brent Hopkins contributed to this report.

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