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Wed, Jul

Revenue Shortfalls Increase Budget Gap to Over $700 Million

LA WATCHDOG

LA WATCHDOG - The charter mandated Revenue Forecast Report prepared by Controller Kenneth Mejia indicated that the City’s revenues for this year and next will be $500 million below plan and that revenues from the Measure ULA tax on property sales of $5 million or more will be significantly below expectations.  This prompted a call by the Controller for the City to clean up its act, reform its budgetary policies, and “live within its means.” 

For this fiscal year that ends on June 30, the Controller estimates that General Fund revenue will be $160 million (2%) below planned revenues of $7.9 billion because of shortfalls in the business, sales, and documentary transfer taxes. The Second Financial Status Report also indicated that there were over expenditures of $143 million, resulting in a $300 million hole in this year’s budget.   

More than likely, the City will need to raid the $580 million Reserve Fund or the $200 million Budget Stabilization Fund.  But aren’t these funds for real emergencies like earthquakes, floods, and pandemics, not to cover operating expenses caused by fiscal irresponsibility? 

For the fiscal year that begins on July 1, the Controller is projecting General Fund revenues of $7.74 billion, a modest $131 million (1.7%) above this year’s estimated revenue of $7.61 billion.  But more to the point, next year’s estimated revenue is $340 million (4.2%) less than the City’s projected revenue of $8.08 billion in the City Administrative Officer’s Four-Year Budget Outlook.     

Adding this revenue shortfall to the projected budget gap of $350 million to $400 million caused by the budget busting labor agreements, the City is looking at a projected deficit of around $700 million for the upcoming year. 

This will also result in another raid on the Reserve and Budget Stabilization Funds and a call to increase our taxes and fees. 

There is also the question of how to fund the Mayor’s Homeless Services and Housing Program.  This year’s $1.3 billion budget relied on sources that will or may not be available in the upcoming year because the City’s impeding $700 million budget gap: a $250 million one-time contribution from the General Fund, $261 million of Proposition HHH bonds that are now fully allocated, $150 million from the Measure ULA tax, and an additional $200 million from various City departments. 

Funds from Measure ULA are subject to litigation which is why the City allocated only $150 million to the homeless budget from the projected $672 million House LA Fund, a prudent decision.  However, projected revenues of $600 million a year from this tax have not met expectations. Rather, revenues for this year are expected to be $270 million and $271 million for next year, resulting a fund balance of around $400 million after the $150 million contribution, hardly enough to replace the lost funds even if the City foolishly decides to drain this fund that is subject to litigation. 

Balancing next year’s budget will be a challenge for the Mayor and the City Council, a mess they created by entering into the budget busting labor agreements, relying on overly optimistic revenue assumptions, reckless spending, and inefficient and poorly managed operations. 

The Controller is calling on the Mayor, the City Council, the City Administrative Officer, and others to address the City’s Structural Deficit by “developing a serious, long-term plan for reshaping the City’s government” so that it can “live within its means.”  Failure to do so “will trigger far uglier choices down the road.” 

Without real budgetary reform, Angelenos will be forced to vote NO on any ballot measure to increase our already burdensome taxes.  It makes no sense to support our fiscally irresponsible elected officials. 

(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].)

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