Fri, Jun

LA's Reserve Fund is for Emergencies, Not Operating Deficits


LA WATCHDOG - The Mid-Year Financial Status Report prepared by the City Administrative Officer identified $129 million in expenditures above plan. The primary culprits were the Fire Department, General Services, Project RoomKey, and the repayment of an over advance from the Sewer and Construction Maintenance Fund. 

On the other hand, higher than anticipated revenues were $44 million.  The City benefitted from higher Utility, Property, and Hotel taxes.  But they were offset, in part, by a precipitous drop in the Documentary Transfer Tax because of the slowdown in the real estate market that could have a ripple effect on the other revenue sources and the economy.  

The net result is a shortfall of $85 million. To close this gap, the CAO is proposing to tap the Reserve Fund for almost $60 million and use unappropriated balances of $68 million. This does not include the use of the higher than anticipated revenues to offset the shortfall, indicating that there may be other deficits that will need to be addressed. 

While the City continues to use the Reserve Fund for working capital purposes, it should be used only for emergencies such as earthquakes and pandemics.   

Through the first eight months of the fiscal year, the Reserve Fund is down by almost $150 million.  Underlying this decrease are advances of $75 million to fund the City’s homeless initiatives (Project RoomKey and project HomeKey), $30 million to cover cost overruns on Controller’s Human Resources and Payroll project, and $25 million to repay a loan from the Building and Safety Enterprise Fund. 

The City will most likely tap the Reserve Fund for an additional $34 million to repay the Sewer and Construction Maintenance Fund, increasing the total hit to almost $185 million. There are also rumors that the Reserve Fund will be used for other initiatives. 

[One question: Will some of the $672 million from Measure ULA (the tax on property sales of $5 million or more) be used to repay the $75 million the Reserve Fund advanced for projects Room Key and HomeKey?] 

But these payments from the Reserve Fund have not been for emergencies, but rather to fund operating expenses. This is the result of poor planning and the lack of financial discipline by the City Council and our former mayor.    

As of now, the Reserve Fund ($464 million) and the Budget Stabilization Fund ($193 million) have cash and equivalents of almost $660 million, an amount equal to 8.9% of the General Fund budget.  However, this is below the 10% goal of the City and the amount recommended by the Government Finance Officers Association.   

The Mayor’s upcoming budget should fully fund the Reserve Fund as a matter of policy.  And it should be used for emergencies only and not a tool to fund deficits or finance working capital.  Come April 20 when the Mayor submits her first budget to the City Council, we should have a better understanding of the status of the Reserve Fund. 


There are other issues raised by the Financial Status Report.   Of the City’s 38,515 positions, 6,751 are not filled, representing a vacancy factor of 17.5%.  If the City was to begin hiring new employees, it would create considerable pressure on the budget. 

The liability claims against are $19 million over budget, another shortfall from the prior administration that needs to be funded. 

(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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