LA WATCHDOG-While the City is anticipating the cash infusion of $1.35 billion from the Federal government, the timing is uncertain, creating significant cash flow issues that must be addressed, especially in the upcoming fiscal year.
The first installment of $677 million is expected within the next month or two, certainly no later than June 30, the end of the City’s fiscal year. These funds will be directed to the City’s Reserve and Budget Stabilization Funds, increasing their funding to over $800 million. This represents more than 12% of General Fund revenues, exceeding the City’s stated goal of 10%, making Paul Krekorian, the chair of the Budget & Finance Committee and the long time champion of the Reserve Fund, a very happy camper.
The receipt of the second installment of $677 million is more problematic because it is expected within a year of the first tranche. This means that the payment could be received anytime between July and May, creating uncertainty and the need to plan accordingly.
As a result, the City is increasing the amount of its annual short term borrowings to an estimated $750 million, an increase of $300 million from last year’s borrowing requirements.
Every year, the City issues Tax and Revenue Anticipation Notes to finance its operations until December and January when property tax revenue begins to flow into the City’s coffers. By increasing the size of its short term borrowings, the City will have considerably more financial flexibility in case the Feds delay the cash infusion, unanticipated restrictions on the use of the Federal funds, revenues do not meet expectations, or there is some unexpected event. It also eliminates the need to raid the Reserve Fund.
At the same time, the City will also raise $1.33 billion to prepay its contributions to its two pension funds, saving over $25 million if the City made monthly payments.
These Notes will be amortized over the second half of the year from the surge in revenues from the property and business taxes and the transfer from the Department of Water and Power.
In July, the City will issue an estimated $2.05 billion in Tax and Revenue Anticipation Notes, about $300 million more than last year’s offering. While the extra borrowings will cost an estimated $3 million, it is more than justifiable because it gives the City the necessary flexibility to cope with uncertain timing of the cash infusions from Washington.
(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: firstname.lastname@example.org.)