LA WATCHDOG - Our Elected Elite are doing a conga line around City Hall, celebrating the approval of next year’s “balanced” budget (2022-23).
But despite record revenues of almost $7.5 billion (up almost 9% from continuing revenues in this year’s adopted budget), City Hall is raiding its Reserve Fund for $106 million. This is addition to $85 million diverted from the fund this year (2021-22) to balance the budget.
This raiding of the Reserve Fund in the time of record revenues is contrary to sound financial management. In good times, you put aside money in good times for when times are tough.
In 2011, 66% of the voters approved the establishment of the Reserve Fund. The City subsequently established a policy that it would have a minimum balance equal to 5% of General Fund revenues. As of July 1, $466 million is on deposit, representing 6.25% of General Fund revenues of slightly less than $7.5 million.
The City’s Budget Stabilization Fund is designed to capture excess revenues during times of robust growth. This fund is expected to have $184 million on account at the end of the next fiscal year.
Together, these two funds have a total of $650 million, or 8.7% of revenues, significantly more than the 5% policy goal. But this $100 million is less than the 10% goal ($750 million) recommended by the City Administrative Officer.
However, some will correctly argue that the City’s reserves should equal two months revenues (16.7% of revenues), or $1.25 billion, because of the many risks facing the City, including, but not limited to, earthquakes, pandemics, wildfires, mudslides, flooding, recessions, inflation, budget busting labor agreements, civil disturbances, an explosion of the LPG storage tanks at the Port, or other unforeseen events.
Rather than raiding the Reserve Fund to balance the budget, the City should adopt a compromise policy of creating $1 billion (13.3% of revenues) in reserves to be used only in the case of a real emergency.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee, the Budget and DWP representative for the Greater Wilshire Neighborhood Council, and a Neighborhood Council Budget Advocate. He can be reached at: [email protected].)