Mon, May

Does LA Have Adequate Reserves Amidst Labor Agreements and Revenue Shortfall?


LA WATCHDOG - Does the City of Los Angeles have adequate reserves? NO. 

As a result of budget busting labor agreements and lower than expected revenues, the City tapped the Reserve Fund for $300 million to balance this year’s budget that ends on June 30th. The Reserve Fund now stands at $400 million, an amount equal to 5% of the General Fund budget, its minimum required level. 

While the Proposed Budget for the 2024-25 fiscal year that begins on July 1st is theoretically balanced, there is the high likelihood that it will experience several hiccups that may require the City to rely on the already depleted Reserve Fund. 

For example, does the Proposed Budget provide for raises for the firefighters whose contract expires on June 30th? 

And what about the over-expenditures that the City experiences every year? 

And what if the City steps up to rescue Skid Row Housing Trust now that the $27 million deal with the AIDS Healthcare Foundation has collapsed? 

Or what happens if Liability Claims exceed the budgeted level of $87 million, a low-ball estimate since Liability Claims exceeded $250 million this year, thanks in large part to mismanagement by former City Attorney Mike Feuer. 

And how does the City propose to fund the budget gaps that aggregate $900 million over the next four years when factoring in the impact of new labor agreements in 2008 and 2009? 

And what happens if the growth rate in the City’s seven economically sensitive taxes does not reach the projected level of 4.3%, a questionable assumption given the continuing high level of inflation, the slowdown in the nation’s gross domestic product, and the massive federal deficits? 

There are several short-term alternatives. These include the issuance of 10-Year Judgment Obligation Bonds to fund the excess Liability Claims. The City is planning to increase our Sewer and Solid Waste Recovery Fees by hundreds of millions of dollars that will free up General Fund money that has been supporting these two operations. The City may even rely on the Budget Stabilization Fund for $25 million this year.  

But these are nickel and dime solutions. What is needed is a comprehensive overhaul of the City’s budget and finances and the development of a long-range plan to achieve financial sustainability, beginning with Mayor’s plan to review and analyze the staffing, efficiency, and finances of each City department once the budget is approved. 

And with our depleted Reserve Fund, just imagine the impact on the City’s finances if we experienced real emergency such as an earthquake. 

(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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