LA WATCHDOG--The City’s Reserve Fund is intended to be used for emergencies and unforeseen expenditures, such as those created by the recent pandemic, an earthquake, or a wildfire.
But this limitation does not concern the Los Angeles City Council that lives for the moment.
After the $1.3 billion infusion of cash from the Federal government, the Reserve Fund has a balance of $696 million according to Mayor Garcetti’s Proposed Budget. This is equal to 9.5% of the General Fund budget, just shy of the City’s stated 10% goal. But after the City Council’s revision to the Proposed Budget, the Reserve Fund balance is projected to be $509 million, or 6.85% of General Fund revenues. At the same time, tax revenues resulting from pent up demand are expected to increase by over $100 million.
A decrease of almost $200 million in the Reserve Fund and a more than $100 million bump in revenues implies additional expenditures of $300 million! At the same time, the Reserve Fund is underfunded by $230 million.
This does not take into consideration around $50 to $100 million in additional spending that has been proposed in 34 council motions, most of which have been referred to the Budget and Finance Committee for review.
To offset this raid on the Reserve Fund, the City Council is considering a policy “to utilize State or Federal revenues that the City may receive, unanticipated in the budget, to build the total reserve up to 10%.” This fiscally irresponsible budgeting is “bass-ackwards.” Instead, prudence dictates that the City waits until it receives the cash and then approves the expenditures.
The Reserve Fund will be under considerable stress even if the pandemic is no longer an issue. The City may still be running deficits in the next few years because it will need to finance on-going operations that are being financed with one-time revenues, a clear violation of the City’s Fiscal Policies. The City’s revenues may also be below its aggressive expectations.
But the major stress on the budget and the Reserve Fund will be when the City’s public sector unions, seeing all that cash, will demand budget busting labor agreements when their existing agreements expire in 2022-23 and 2023-24. And like they did in 2019, the City Council and Mayor will toss any semblance of fiscal responsibility to the wind and acquiesce to the demands of the campaign funding leaders of the public sector unions.
The infusion of $1.3 billion from the Federal government not only rescued the City from a fiscal abyss, but allowed the City to honor the Mayor’s Back to Basics pledge: balance the budget, establish a robust Reserve Fund, and live within its means. Unfortunately, cash is the ultimate aphrodisiac for politicians who consider the Reserve Fund as a slush fund to finance pet projects and budget busting labor agreements.
Addendum: Los Angeles Times columnist Nick Goldberg, in an article about the famously quiet Supreme Court Justice Clarence Thomas, wrote: “I’m so sick of narcissists in public life who think that no subject has been adequately discussed until they themselves have participated in the droning and blathering. A little humility never hurt anyone.” After listening the Budget hearings, this is great advice for wannabe mayor Kevin de Leon, especially when he tries to wing it when he has not done his homework.
(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.)