The real cost of "chargebacks" as outlined by Rec and Parks

"...although (Recreation and Parks) is one of 30+ City Departments, (Recreation and Parks) alone has contributed $151 million (19%) (almost one-fifth) to reducing the City's projected budget deficit of $800 million over these last several fiscal years through paying the indirect/support costs."

What follows is the cover letter from the Department of Recreation and Parks' formal response to the Mayor's Budget for FY14. The new budget takes another $64 million in chargebacks and $8 million in other required payments away from Recreation and Parks programming.

(typos are probably our fault.)

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April 23, 2013
Honorable Paul Krekorian, Chair
Budget and Finance Committee
City Clerk, City Hall Room 395
Los Angeles, CA 90012
ATTN: Erika Pulst, Legislative Assistant

Dear Councilmember Krekorian:

The Department of Recreation and Parks (RAP) respectfully submits this letter to assist your Committee in providing a deeper explanation of RAP's budget. In order to understand this budget, the Council and your Committee must look at the fundamental structural changes that have occurred to RAP's budget over the past seven years. During this time, a City policy shift occurred that affected both RAP and the Library Departmental budgets. It must be noted all RAP monies are "people dollars" used to enhance quality of life, resident programs helping to keep people active and healthy, and youth programs designed to build strong citizens and, thereby, encouraging youth against gang activities. The Department must be viewed as the most non-threatening public social service agency in the City of Los Angeles and a critical arm of public safety.

Summary

The Board of Recreation and Park Commissioners understands that the City has been in a dire financial crisis since Fiscal Year (FY) 2007-08 and the need exists to effect tactical solutions anually to address the City's structural deficit. While tactical decisions are critical in effecting immediate reductions, these decisions will most assuredly affect all future operations. It should be noted that I was one of the few General Managers that openly supported the Early Retirement Incentive Program (ERIP). I did this as I had extensive knowledge and practical experience with the Federal Government when the military was faced with drastic cuts in funding which necessitated the Base Realignment and Closure (BRAC) program, Also, ERIP provided a more sensible program to reduce personnel costs while maintaining the dignity of the exceptional employees of our City. As an aside, the City benefitted from BRAC with the addition of a long term lease for land associated with the former Air Force Base at both Fort McArthur and Whites Point Nike Site. Over the past few budgets, there have been many questions directed at RAP as to why cuts have had to be made, such as a reduction in pool hours or elimination of year-round pools, program reduction/elimination or fee increases (such as community gardens). A complete list of programs that have been reduced or eliminated is provided as Attachment A. These reductions are a direct result of budget decisions necessitated by the worst recession in our country's history.

Attachment B - click on image to enlarge

Since FY 2007-08, RAP's discretionary budget (that portion of the budget which provides programs and services) has been effectively slashed from 100% to 67% of total funding available (See Attachment B). This occurred through the aggressive application of a new City policy of cost recovery for indirect costs necessary to support the direct costs of providing services to millions of our City residents. This system of cost recovery was introduced benignly to recover taxpayer subsidies to golf operations and parking garages. I agreed with this effort, as the RAP General Fund should not subsidize costs that could be absorbed by the users and program payers. Since FY 2010-11, all of our golf operations and our parking garages are fully funded by users. There is no direct subsidy associated with our golf operations and parking garages. However, once this process began, further cost recovery efforts for indirect costs were directed against RAP's General Fund budgetary accounts. Since FY 2007-08, RAP's cumulative payments toward the City'S stated deficit of approximately $800 million has been $151 million or roughly 19% of the total City deficit (See Attachment C). The Department's annual operating budget from all sources is roughly $189 million or approximately 2.7% of the City's total budget of$7.2 billion. It should be recognized that these funds were "people dollars". These "people dollars" went to offset costs of program participation and to maintain City-owned facilities within our park system. The loss of these "people dollars" meant that RAP's full-time staff plunged from a high of over 2,100 to approximately 1,400 or a 30% drop. Additionally, part-time staff dropped from over 6,900 to approximately 3,500. The attached graphs (Attachments D and E) illustrate the increase in RAP funding indirect costs of operations and the decrease in funding for direct costs of operations or actual program dollars.

Attachment C - click to enlarge

In addition, under another new City policy, RAP was directed to begin "self-funding" a portion of its operational budget. This means RAP has to save a portion of one fiscal year's budget to fund next fiscal year's budget. This amount has grown from $1.25 million (FY 2006-07) to a proposed $7.0 million for FY 2013-14. This forces RAP into a constant "juggling act" and eliminates or reduces programs/services during the fiscal year that were to be provided, as approved during the budget process by the Council and Mayor.

Again, referring to Attachment A, RAP has made efforts to focus on core functions and has been forced to make decisions to reduce or cancel those activities that although felt important and even critical to the community, had to be reduced or eliminated as they did not fall within the core functions of a Charter established department. These cuts were not made willingly nor would have been made had the Department not had to absorb support costs of operations never born by RAP in over 100 years of its history. This list is expected to grow over the next several years as RAP is forced to expend more funds on indirect costs. The increase this next fiscal year alone is $4.0 million dollars for a total of approximately $47.5 million. RAP simply does not have the long term ability to continue to finance this level of indirect cost reimbursement to the City's General Fund nor can we continue to self-fund a portion of our own budget each year.

There is some good news; the proposed FY 2013-14 budget provides RAP some one-time City capital funding to rehabilitate and rebuild Celes King III pool and Lincoln Park pool and to install automated locks in restrooms. Separately from the budget process, RAP was able to identify some one-time funding to perform deferred maintenance to improve safety and reduce liability claims, continue some unbudgeted programs such as aquatics at Hubert Humphrey, G1assell,and Peck pools (for FY 2012-13 only) and continue to develop new parks under the 50 Parks Initiative. 


Staffing 

These last few years have been tough for both the residents and the employees. Reductions in costs have resulted in the ERIP, furloughs and layoffs. Fortunately, these tough reductions have kept our great City solvent. Unfortunately, these reductions have been accomplished without any ability to control the areas where employee reductions occurred. The ERIP took a whole level of experienced and critical managers with no ability to backfill through existing City forces. Currently, through both retirement and transfers to other City agencies, departments are losing another level of critical managers who in normal times would be groomed to take on increasing levels of management responsibilities. The City has also cut almost completely the influx in low cost new employees filling the roles of apprentice or low skilled trainable and valuable future leaders. This was a tactical decision to arrest the spiraling personnel and other employee costs but has had and will have severe detrimental costs in both service delivery and direct costs of doing a unit's work.

I will use only one work group in this discussion, our critical men and women who work as Gardener Caretakers. The Department employs over 370 men and women (from a high of 551) who fill the critical task of keeping our parks clean, green and safe for our patrons. The Department of Recreation and Parks has projected ahead some simple facts. The average age of a Gardener Caretaker is 52 years. Their tasks include but are not limited to: the cleaning of restrooms, children's play pits, bike path maintenance, maintenance of our parks, etc. Using a simple direct formula, the Department can expect to lose over 3-4% of these employees each of the next few years further depleting our workforce who are performing critical maintenance tasks. This not only effects RAP's operations but also has City wide implications. For example, RAP is provided funding ($2.0 million from the City General Fund) to perform landscape maintenance at City public buildings (non-RAP owned) but we can no longer shoulder this burden as we simply do not have the staff to complete this work. This is especially true given that RAP has continued to expand the number of parks, facilities and acreage which needs maintenance.

Additionally, cutting off the influx of new and low cost employees is driving our productive cost per unit of work. With the reduction in workforce and using more costly long term employees our cost per unit of work is up while our unit of work produced is down. More or increased cost per unit of work while decreasing work actually completed results in a productivity cost death spiral. Almost every workforce series and classification is affected by these facts. As we find our economy getting stronger, we need to take a more long term strategic vision on our City workforce and core functions.  

Fleet Equipment Replacement and Maintenance 

I would also like to bring to the attention of your Committee that RAP has been able to make productivity gains in our maintenance of parks and facilities by "routing" our gardeners. RAP established approximately 240 maintenance routes with assigned crews throughout the City. Instead of having stationary assignments, crews utilize large fleet equipment (trucks, large mowers, etc.) and small fleet equipment (small mowers, trimmers, etc.) to move from park/ facility to the next park/facility to perform critical maintenance tasks. These productivity gains are being threatened. Due to fleet reduction mandates, RAP has trimmed its fleet to extremely low levels and the large and small fleet equipment is aging. RAP has been informed that at least 62 pieces of equipment originally designated to be MICLA funded were pulled from the proposed FY 2013-2014 budget. Additionally, due to reductions in Department of General Services Fleet maintenance personnel, our equipment sits un repaired in shops. If this trend continues, eventually staff will not have the equipment it needs to adequately do their job.  

Conclusion 

Like other City Departments, RAP incurred budget reductions (positions cuts, layoffs, ERIP, etc.) over these last several fiscal years to help close the City's budget deficit. But RAP and the Library Department also incurred a new City policy of paying indirect/support costs which historically were paid from the City's General Fund on their behalf. The Library Department was somewhat assisted towards this effort with the passage of a voter approved ballot measure which allocated a larger percentage of the City's property tax dollars to them. However, RAP was not so fortunate and has had to absorb these costs from its operating budget at its same property tax allocation percentage. And although RAP is one of 30+ City Departments, RAP alone has contributed $151 million (19%) (almost one-fifth) to reducing the City's projected budget deficit of $800 million over these last several fiscal years through paying the indirect/support costs.

Another new City policy directed to RAP was to self-fund a portion of its own operating budget which is currently $3.8 million to a proposed $7.0 million in the next fiscal year. Our future ability to self-fund part of our own budget and pay $50+ million annually in indirect/support costs is not sustainable. We also have a large infrastructure of facilities that is continuing to age and the deferred maintenance list of items is continuing to grow. Something must be done to address these myriad of issues, or RAP could be facing tough decisions on whether to continue to provide highly subsidized community programs or to transition to a more passive park system dependent on for-profit or non-profit agencies to provide sports and community programming, which we don't believe any Angeleno wants to occur. We can turn this situation around but we must be treated more fairly in the future. Our budget dollars should be treated as service dollars to be used by our people to service the City's people. We are a critical arm of public safety and must work together to balance community needs against fiscal reality.  

Thank you for your continued support of the Department of Recreation and Parks. Should you have any questions, please contact me or Regina Adams, Executive Officer, at (213) 202-2633. 

JON KIRK MUKRI
General Manager