Alert! City Hall Raiding Reserve Funds … in Boom Times

LA WATCHDOG--Mayor Eric Garcetti and Councilman Paul Krekorian, the chairman of the Budget and Finance Committee, have touted the strength of the City’s Reserve Fund and its Budget Stabilization Fund as an example of their prudent management of the City’s finances.

  And while the City’s finances are certainly in better shape than they were during the recession because of the booming economy, do not believe everything you hear, especially when it comes from the spinmeisters that occupy City Hall.  

In March 2011, almost two thirds of Los Angeles voters approved Charter Amendment P which established the Reserve Fund.  The City now has a policy to maintain the Reserve Fund at a level equal to 5% of the General Fund revenues, a goal which the City has achieved.  

As of June 30, 2018, the projected balance is expected to be $343 million, an amount equal to 5.6% of next year’s record General Fund revenues of almost $6.2 billion. 

The Budget Stabilization Fund “was created to prevent overspending during prosperous years and provide resources to help maintain service levels during years of slow revenue growth or declining revenue.”  As of June 30, its balance is expected to be almost $100 million, or 1.6% of General Fund revenues. 

Together, these two funds will have a balance of $442 million, an amount equal to 7.2% of General Fund revenues, 43% greater than the goal of 5%. 

While Garcetti and Krekorian are taking a victory lap, the City Administrative Officer has recommended “increasing the combined balances of the Reserve Fund and the Budget Stabilization Fund to 10% of General Fund revenues.”  This suggests reserves of almost $620 million, meaning that the City’s combined reserves are about $175 million short of the level recommended by the CAO. 

And if the City followed the recommendations of the Government Finance Officers Association that reserves be equal to two months of expenditures, the shortfall would be almost $600 million. 

If the Mayor and the City Council had been prudent in managing our money during boom times, the City’s reserves would be substantially higher. 

Since Garcetti became Mayor, the City has raided the Reserve Fund for over $200 million while, at the same time, General Fund revenues have grown by 35%, or $1.6 billion. 

The City has also diverted over the last two years more than $150 million from the Budget Stabilization Fund to pay for ordinary operating expenses such as paving our streets and fixing our sidewalks.  But this was not the intent of the 2011 ballot measure as excess revenues from the seven economically sensitive revenue sources (property, utility users, business, sales, hotel, documentary transfer, and parking occupancy taxes) were intended for a rainy day, not every day expenses in sunny Southern California.  

Unlike Governor Brown, our spendthrift Mayor has no financial discipline. He has demonstrated on numerous occasions that he is willing to sell the next generations of Angelenos down the river for his own political gain.  

His Back to Basics pledge of having the City of Los Angeles live within its financial means is another broken campaign promise.

 

(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.  He can be reached at:  lajack@gmail.com.)

-cw