LA WATCHDOG--The City of Los Angeles is drowning a sea of red ink.
Its budget deficit for the upcoming fiscal year beginning July 1, 2017 is projected to be in the range of $200 to $250 million. This is up from the $85 million shortfall that Mayor Eric Garcetti outlined in his “Fiscal Year 2017-18 Budget Policy and Goals” memo in September.
There is also the real possibility that the cumulative budget gap for the next four years may soar to well over $750 million, up from the current estimate of $300 million.
But Eric, how is this possible if City revenues are $1 billion higher than they were four years ago and collections are projected to increase by $600 million over the next four years?
In January, the City Administrative Officer indicated that the City was looking at a potential budget deficit of $245 million for this fiscal year (2016-17). This contrasts with the “balanced” budget only six months earlier.
Expenditures rose by an unexpected $80 million over budget, primarily because of runaway legal settlements that will be in the range of $140 million (or more) this year. This is more than double the budgeted liability of $68 million.
Revenues were off by $165 million. This shortfall included $90 million in lower collections from property taxes, sales taxes, and taxes on the revenues of our Department of Water and Power.
These expenditure and revenue trends are expected to impact next year’s budget, increasing the September deficit of $85 million to $200 to $250 million.
The deficit for the following year (2018-19) is expected to grow as new labor contracts for the police and civilian workers will go into effect, probably adding $50 to $100 million to the projected deficit.
As if these deficits were not bad enough, the budget outlook does not include adequate funding to repair our lunar cratered streets and cracked sidewalks, despite an infusion of almost $50 million from the Local Return provisions of Measure M, the half cent increase in our sales tax that was approved by 71% of the voters in November.
Nor do the projections include sufficient monies to offset the deferred maintenance on the City’s infrastructure, including our run down parks, our urban forest, its Stone Age management systems, and its aging buildings and facilities.
The City’s Budget Outlook does not take into consideration higher pension contributions mandated by lower than anticipated returns on the investment portfolios of its two seriously underfunded pension plans and the impact of a lower investment rate assumption from the overly optimistic discount rate of 7½%.
And what will happen if we hit another economic downturn that results in lower City revenues?
With all this red ink and another budget crisis looming, why haven’t Mayor Garcetti and the Herb Wesson City Council adopted the four excellent budget recommendations of the LA 2020 Commission that were reiterated by the Neighborhood Council Budget Advocates in October?
In 2014, one of pillars of Eric’s “Back to Basics” Priority Outcomes was that LA would “live within its financial means.” But that is certainly not the case given the sea of red ink.
The Neighborhood Council Budget Advocates are developing its own “Back to Basics” Plan that calls for, among other recommendations, long range planning; developing a plan to repair and maintain our streets, sidewalks and the rest of our infrastructure; refraining from entering into any labor contract that will result in future deficits; limiting the hiring of any new employees unless there is adequate funding; implementing pension reform; benchmarking the efficiency of the City’s workforce; and developing business friendly policies that will encourage employers to remain and invest in LA.
The City’s impending financial fiasco has been kept under wraps so as not to endanger the reelection of Mayor Garcetti and seven members of the City Council. Nevertheless, this mess will not go away, nor will the efforts to treat us like mushrooms, keeping us in the dark and dumping tons of ripe manure on our heads.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council. He is a Neighborhood Council Budget Advocate. Jack is affiliated with Recycler Classifieds -- www.recycler.com. He can be reached at: firstname.lastname@example.org.)