Nithya’s Budget Buzz Saw
LA WATCHDOG - Nithya Raman, our new mayor, will inherit a budget that is a river of red ink.
According to the First Financial Status Report for the first quarter ending September 30, the City is anticipating over expenditures of $322 million for the fiscal year. The major culprits are the Fire Department ($141 million), liability claims ($62 million), and the City Attorney’s office ($34 million).
This shortfall will be offset by an anticipated $109 million increase in annual revenues, primarily from higher revenues from property taxes, sales taxes, utility taxes, and department receipts.
This net shortfall of $213 million will be offset by $184 million in unappropriated balances (a form of reserves), leaving a shortfall of only $29 million. But this negative balance will be more than covered by an estimated $84 million from the recently approved half cent increase in our sales tax to 10¾% (Measure FD) that will go into effect on April 1, the beginning of the last quarter of the fiscal year. (The annual revenue from Measure FD is expected to be $345 million.)
The net surplus of over $50 million may be used to cover any additional over expenditures (a common occurrence) and to replenish the Reserve Fund that is seriously underfunded by around $500 million, according to guidelines from the Government Finance Officers Association.
For the following fiscal year that begins on July 1, 2027, the Four-Year General Fund Budget Outlook projects a shortfall of $166 million. When considering the impact of new labor agreements for the Police Department and civilian employees, this shortfall increases to around $200 million. Any raises for the Fire Department personnel will be paid for by Measure FD.
But that’s not all. According to the FSR, the City will need to increase its Annual Required Contributions to its two pension plans (LACERS and LAFPP) by $183 million. In addition, the City will be required to increase its funding for the Department of Recreation and Parks by $32 million pursuant to the recently approved ballot Measure PRK.
This results in a deficit of over $400 million for the 2027-28 fiscal year that begins on only eight months on July 1, 2007.
Over the next three years (2029, 2030, and 2031), it only gets worse, with a 2031 shortfall of $750 million after considering budget busting labor agreements, increased pension contributions, and additional funding for Rec & Parks. Balancing the budget over the next four years and the elimination of the Structural Deficit will require a significant reduction in services, including public safety (LAPD) and the repair and maintenance of our infrastructure, including our streets, sidewalks, parks, and streetlights.
Nithya should enjoy her brief holiday for the remainder of this year. But really, she needs to begin work tomorrow on her two year budget (a new requirement under Measure LA) that is due on April Fool’s Day, 2017. It will not be a joke.
(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 lajack@gmail.com.)
