LA WATCHDOG--“The Great Recession is over. We now have a balanced budget and we have eliminated over 85% of our Structural Deficit.” City Councilman Paul Krekorian, Chair of the Los Angeles City Council’s Budget & Finance Committee, February 27, 2019
When the chair of the Budget and Finance Committee does not understand the City’s budget and finances, it is time for an open dialogue with Angelenos and the establishment of an independent, well financed Office of Transparency and Accountability as recommended by the LA 2020 Commission.
The budget is not balanced.
The City Administrative Officer recently reported over-expenditures of $70 million. The budget also does not consider raises for the City’s civilian workers that are estimated to $40 million. This implies a budget deficit of over $100 million.
To make matters worse, the current budget also relied on transfers of over $100 million from the City’s underfunded Reserve and Budget Stabilization Funds.
Next year, the CAO is projecting a $160 million deficit despite a $100 million increase in revenues.
But this shortfall does not consider for raises for the police, firefighters, and civilian workers that are expected to exceed $100 million, pushing next year’s deficit to over $260 million.
The City still has a Structural Deficit despite the fact that General Fund revenues have increased by $1.8 billion, or 40%, since the end of the Great Recession. Over the next four years, increases in salaries are projected to overwhelm the growth in revenues, resulting in deficits of $250 million a year. The cumulative four year deficit will be $1 billion.
These deficits are understated because the City is underfunding its Reserve Fund by $50 million a year. The Mayor and City Council also underfunding the repair and maintenance of the City’s infrastructure by at least $250 million a year.
The City is also shortchanging the City’s two underfunded pension plans because it is relying on an overly optimistic investment rate assumption of 7.25%. If the City lowered the rate to a more realistic, but still optimistic 6.25%, the City would need to contribute an additional $500 million a year to the two plans that are already $15 billion in the hole.
The net is that the City of Los Angeles’ Structural Deficit is $1 billion a year, or $4 billion over the next four years, a price that the next generation or two of Angelenos will have to pay for City Hall’s financial follies.
As chair of the Budget and Finance Committee, Councilman Paul Krekorian should schedule public meetings to discuss the unbalanced budget and the Structural Deficit, where the public is represented by the Neighborhood Council Budget Advocates and other interested parties so that there is a debate, not another one sided snow job by City Hall.
The City should also speed up the presentation of the Mayor’s proposed to January 10 from the current charter mandated April 20. This will give Angelenos and the media an extra 100 days to review and analyze the budget and make informed comments and recommendations.
The City should also implement the recommendation of the LA 2020 Commission to establish an independent, well financed Office of Transparency and Accountability to review, analyze, and comment on the City’s budget, finances, and efficiency of its operations.
Will Budget and Finance Chair Paul Krekorian have the guts to address the City’s budget shortfalls and Structural Deficit? Or will he, along with Mayor Eric Garcetti and the Herb Wesson led City Council, remain Deficit Deniers? Stay tuned.
(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: email@example.com.)