CommentsBUDGET ADVOCATES-The City’s finances have been rescued by the infusion of $1.35 billion from the Federal government.
On July 1, at the beginning of the 2021-22 fiscal year, the City will have a balanced budget and reserves of over $800 million, equal to more than 12% of General Fund revenue. This exceeds the stated goal of 10%. This includes the Reserve Fund ($696 million) and the Budget Stabilization Fund ($118 million).
We have two areas of concern: the use of one-time money to finance on-going departmental operations and the aggressive assumptions relating to the growth of City revenues.
The City will use $134 million of one-time money to finance on-going departmental operations. This is contrary to the City’s Financial Policies. This will create a deficit for the following fiscal year (2022-23). In addition, the City Administrative Officer is concerned that $144 million of one-time expenditures will be continued, resulting in an increased deficit that could exceed $275 million in 2022-23.
Over the next two years, the City is assuming that revenues will grow at 8% per year. This assumes that the economy will be growing at a record rate and that LA will return to “normal” starting on July 1. However, if the growth rate were “only” 6%, the revenue shortfall would be almost $400 million.
As a result, the City may be forced to tap the Reserve Fund to balance the budget, reducing the City’s reserves below its stated goal.
The Budget Advocates recommend that the Budget and Finance Committee review the use of one-time funds to finance on-going operations, especially as it relates to the following fiscal year, and review the revenue growth assumptions with the thought of lowering the aggressive assumptions.
If not, there is a strong likelihood that the City will be in the same position as it was prior to the pandemic, looking at a Structural Deficit, lower than planned reserves, and the prospect of serious cuts in service.
(From a presentation to the Los Angeles City Council’s Budget and Finance Committee on May 3, 2021 by Jack Humphreville, Co-Chair of the Neighborhood Council Budget Advocates) Photo: Nigel Killeen/Getty Images. Prepped for CityWatch by Linda Abrams.
