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LA WATCHDOG - In June, the City of Los Angeles declared a State of Emergency “based on fiscal circumstances resulting from decreased revenue and increased liabilities.” This emergency was self-inflicted. The Mayor and the City Council agreed to unfunded and unsustainable budget busting labor agreements while relying on overly optimistic revenue assumptions and underestimating liability claims.
Over the next four years, the City’s Structural Deficit is expected to exceed $600 million when factoring in new labor agreements beginning in 2027. This will impact not only the budget, but many worthwhile capital projects, including the Convention Center.
The City Council is considering authorizing a $2.7 billion plan to expand and modernize the Convention Center so that it can be ready for the Olympics. This is an increase of almost $500 million since March and more than $2 billion from the 2015 estimate of $500 million that AEG, the operator of the Convention Center, was prepared to finance.
This project would require over $3.2 billion in financing, including capitalized interest. It would also require the General Fund to subsidize the losses (includes debt service) of the Convention Center by an average of $111 million over the next 30 years. In 2031, the drain on the General Fund is an estimated $167 million.
This expansion and modernization project relies on many optimistic assumptions, including on time delivery and on budget, signage revenues that are dependent on Sacramento, DWP being able to complete the necessary electrical work, unknown site conditions, and approvals of LA28 and the Olympic committees. And as we all know, the City is not known for the timely completion of capital projects.
This worthwhile project, as presently contemplated, is not ready for prime. It is too damn risky and according to Budget Chair Katy Yaroslavsky, unaffordable and just too expensive. Rather, the City should proceed, but not on a schedule that is dependent on the Olympics. But extending the time frame by a year or two, the City will eliminate massive amounts of overtime, double shifts, and supply chain risks.
Put another way, “Do we want a very beautiful Convention Center but a bankrupt City.”
(Jack Humphreville writes the LA Watchdog column for CityWatch, where he covers city finances, utilities, and accountability at City Hall. He is President of the DWP Advocacy Committee, serves as the Budget and DWP representative for the Greater Wilshire Neighborhood Council, and is a longtime Neighborhood Council Budget Advocate. With a sharp focus on fiscal responsibility and transparency, Jack brings an informed and independent voice to Los Angeles civic affairs. He can be reached at [email protected].)
