LA’s Leaky Rainy Day Fund

LA WATCHDOG--The City Administrative Officer’s Third Financial Status Report dated March 16 paints a bleak picture of the City’s finances, including the previous sacrosanct Reserve Fund.  

For the current year, the City is looking at a $57 million deficit.  But this does not take into consideration the strong probability of lower revenues from property and sales taxes, taxes on DWP Ratepayers (the 10% Utility Users’ Tax and the illegal 8% Transfer Tax), departmental fees from the City’s proprietary departments and special funds, parking fines, and franchise fees.  These dings more than offset the growth in the hotel tax and the documentary transfer tax. 

The Report also indicates that next year’s budget gap is anticipated to be $224 million.  But even this projection for the fiscal year beginning on July 1 may be understated because of lower than anticipated revenues and the demand for increased services.  

One of the culprits in this year’s deficit is the explosion in legal liabilities as the City is anticipating spending $147 million in settlements and judgments, almost $80 million more than the budgeted liability of $68 million.  To cover these higher than anticipated losses, the City is hitting up the Reserve Fund for over $60 million. 

Unfortunately, the Reserve Fund no longer has a surplus that can be tapped unless it is a true emergency.  As of January 31, the Reserve Fund had dipped slightly below the minimum threshold of $279 million, an amount equal to 5% of General Fund revenues of $5.576 billion. 

To replenish the Reserve Fund, the City is pursuing the issuance of $70 million of Judgment Obligation Bonds.  But ev en with this infusion, the Reserve Fund may not be able to absorb this year’s losses, especially if revenues are lower than budgeted.  

This will also preclude the Mayor and the City Council from raiding the Reserve Fund.  

Over the last three years, the Mayor and the City Council have siphoned off $213 million from the Reserve Fund without blinking an eye.  

But were these financial transactions necessary given that City revenues have increased by $900 million over the last four years? 

Why did the Budget and Finance Committee chaired by Paul Krekorian permit this transfer from the Reserve Fund?  

Why did the Budget and Finance Committee allocate only $68 million for legal liabilities when the City Administrative Officer recommended a significantly higher amount? 

If the Reserve Fund had the $213 million that was drained from its accounts, the balance of our rainy-day fund would be almost $500 million, or 8.8% of the General Fund revenues. 

And if you toss in the Budget Stabilization Fund of $94 million, total reserves increase to $585 million, or a very healthy 10.5% of General Fund revenues, exceeding the 10% level recommended by Miguel Santana, our previous CAO.  

This is another case where the politically motivated spending policies of our Elected Elite trumped the long-term interests of the City.  This is reminiscent of their failure to fund the repair and maintenance of our lunar cratered streets, our broken sidewalks, and the rest of our deteriorating infrastructure; their unwillingness to engage in real pension reform; and their approval of budget busting labor contracts. 

We cannot trust Mayor Garcetti, the City Council, and the Budget and Finance Committee with our money.  

We need an independent Office of Transparency and Accountability to oversee the City’s finances and protect us from the Mayor and the City Council pursuing short term political goals that are not in the best long-term interests of the City and all Angelenos.

(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 --  He can be reached at: