The $212 million budget shortfall, projected to more than double next year, is attributed mainly to plunging tax revenue blamed on the region's sagging economy, falling property values and a 15 percent jobless rate -- one of the highest of any major U.S. city.
"The last time we saw this kind of drop in revenue was the Great Depression," Miguel Santana, the city's chief financial officer, told Reuters. "It speaks to how severe this budget crisis is."
Mayor Antonio Villaraigosa and other senior city officials spoke on Friday with executives at Fitch Ratings, seeking to forestall a further diminution of Los Angeles' credit-worthiness.
The city was downgraded late last year from a top rating of "AAA" to "AA-" as serious budget problems loomed.
One major concern for holders of municipal debt is a plan by the city to use most of its $230 million reserve to close its current budget shortfall, Santana said.
He added the city plans to replenish its reserve in part by leasing out its parking garages to private operators. But analysts said sharp revenue declines leave Los Angeles with relatively few options.
"It's pretty simple. They are going to need to make some serious spending cuts," said Ian Carroll of Standard & Poor's.
LAYOFFS OR PAY CUTS?
The crisis has put Villaraigosa, a former labor activist, squarely at odds with unions that represent 98 percent of L.A.'s municipal work force, which in turn accounts for 80 percent of the city budget.
Villaraigosa said last week he will propose the elimination of 1,200 to 2,000 city government jobs in next year's budget, on top of 1,000 positions the mayor last week ordered to be cut over the next few months.
He hopes to achieve some cuts through attrition and by moving some workers into vacant positions in self-supporting agencies, such as the Department of Water and Power. But Villaraigosa has acknowledged that as many as 350 employees will likely be terminated in the initial round of cuts.
He also has suggested that large layoffs could be avoided if the unions were willing to accept pay cuts.
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