LA’s Budget: A Train Wreck

LA WATCHDOG--On Thursday, the Los Angeles City Council approved a “fiscally responsible” budget for the upcoming fiscal year beginning July 1, 2017 despite what they claimed were “challenging” economic times. But despite all the self-congratulatory speeches, the City’s budget is a train wreck as pension denier Paul Krekorian, the Chair of the Budget and Finance Committee, City Council President Herb Wesson, and Mayor Eric Garcetti continue to kick the budget can down our lunar cratered streets. 


During the past month, while the members of Budget and Finance Committee considered next year’s budget, they did not address the $91 million budget deficit for the current fiscal year that ends on June 30, 2017.  This shortfall was lowered to $55 million by raiding the City’s Reserve Fund for $36 million, a stunt that will cause the City’s two rainy day funds to be more than $200 million below the $579 million level recommended by the City Administrative Officer. 

How the City proposes to cover this $55 million black hole will most  likely result in another assault on the Reserve Fund or even more budget shenanigans involving the proprietary departments and other special funds.  

Next year’s budget will $5.8 billion, a record as revenues are expected to increase by $238 million (4.3%).  But the ‘balanced” budget is “challenging” as it is held together by bubblegum as Mayor Garcetti and his fellow spendthrifts on the City Council are banking on a number of optimistic assumptions. 

The City is counting on receiving the Power Revenue Transfer Fee/Tax of $242.5 million, even though it is subject to a class action lawsuit.  The City is also assuming that the DWP Electric Users’ Tax will increase 11% to $407 million; that Airbnb regulations will not change and will provide $33.7 million in hotel tax revenues; and that revenue from Licenses, Permits, Fees, and Fines (70% of which are internal transfers between City departments and subject to budget gymnastics) will increase by hefty 14% ($127 million) to over $1 billion.  

The City also diverted $75 million from the Budget Stabilization Fund, one of the City’s two rainy day funds, to the General Fund, violating one of the financial pillars put in place by the City Administrative Officer to prevent overspending in fat years.  

The City is also assuming that expenditures will not exceed budgeted amounts.  But that is questionable as the Liability Claims, police overtime, and budget reserves (unappropriated balances) may be subject to unanticipated increases.  This overspending has been the case in recent years. 

The real problem is future budgets as the Four Year Outlook anticipates a budget gap $104 million in the following year that begins on July 1, 2018.  But in her memo of May 12, the Chief Legislative Analyst warned that pension, liability claims, workers’ compensation, and labor costs may exceed the projected levels.  This implies a budget gap considerably more than $104 million.  

Over the next four years, the budget gap is projected to be around $300 million.  But when you add the real cost of pensions, the impact of new labor contracts, and the necessary funds to repair our streets and the rest of our deteriorating infrastructure, the cumulative four year budget gap soars to $3.4 billion, an average of $850 million a year. 

During the budget hearings, Bob Blumenfield complained that none of the Councilmembers were at City Hall when the actions that resulted in the large legal settlements were committed.  But this will be the same comment in 20 years when Angelenos and the politicians will be wondering why Mayor Garcetti, pension denier Paul Krekorian, the Chair of the Budget and Finance Committee, and City Council President Herb Wesson put their heads in the sand and ignored the City’s impending financial meltdown.  

As the Los Angeles Times editorialized, our overly optimistic mayor and the City Council need to GET REAL on the City’s precarious finances.  It is not fair to burden the next generation of Angelenos with Structural Deficits, unsustainable pension obligations, and a broken infrastructure. 

(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: