Bloomberg News
Los Angeles city leaders have some work ahead to close a $296.14 million deficit, according
The city has already depleted reserves to close a prior year deficit.
“According to the city administrative officer and consistent with national trends, the city’s financial status reflects a pile-on of COVID-19 settlements,” according to the office of Mayor Karen Bass. “The city is working towards replenishing its reserves to improve our financial outlook for the remainder of this budget year and start strong next year.”
In a
According to Cole, the city had reserves of $648.3 million 18 months ago, but the city has depleted half of that total to cover budgets for fiscal year 2024-25.
“We are less than half way through the fiscal year and the CAO is projecting expenses will exceed the budget by $296.14 million – and we only have $350.53 million left in the reserves,” Cole said.
Szabo recommended transfers, appropriations and budgetary adjustments totaling $91.80 million to help close the deficit. The committee approved the CAO’s recommendations, but that still leaves nearly $200 million more in budget solutions.
Szabo told the committee that not only are immediate reductions needed, but hard choices loom for next year’s budget.
“To replenish reserves to the 5% required by the city policy and cover rising payroll and liability costs means a shortfall of nearly a half billion dollars for next year’s budget,” Cole wrote in his post. “Look for higher trash and sewer rates, borrowing and further staff reductions – and that still may not be enough.”
The City Council already approved an increase in sewer rates as part of the fiscal 2024-25 budget, so that’s been approved, and isn’t really something new, according to the mayor’s office.
Cole warned that projections show the shortfall growing bigger each of the next two years after that, “red ink as far as the eye can see.”
One of the budget challenges is an increase in liabilities from lawsuits filed against the Los Angeles Police Department.
The Council and Mayor have “instructed the CAO and requested the city attorney to report on strategies to limit future liability and outside counsel spending,” according Szabo’s report.
Bass has been criss-crossing the city since Dec. 6 touting her administration’s achievements over her two years in office.
“Even with fiscal headwinds, homelessness is down, LADP applications are up, and essential city workers are being paid more fairly,” according to the mayor’s office.
City leaders have been working since September to close the deficit.
Szabo had recommended issuing a roughly $80 million judgment obligation bond to reimburse the reserve fund for transfers to cover the cost of the lawsuits. The CAO and city attorney’s office have assembled a financing team to discuss steps and a timeline for issuing bonds, and to formalize an amount, Szabo said.
“If we issue a judgment obligation bond, the proceeds will not be available to restore the reserve fund during 2024-25, but could be available for that purpose during 2025-26,” according to Szabo’s report. “Therefore, in order to ensure that the reserve fund remains above the 2.75% emergency reserve level for the remainder of this fiscal year, we recommend, to the degree possible that the city minimize the use of the reserve fund for any purpose other than paying for settlements and judgments that could be part of a future judgment obligation bond.”
Bass has been highlighting her efforts to reduce homelessness and homicides, create jobs, combat climate change and improve the delivery of city services to prepare for the 2026 World Cup and 2028 Olympics.
When the annual point-in-time numbers on the number of homeless people in the city came out in May and June, the city posted its first decline in homelessness in six years, said Clara Karger, a Bass spokeswoman.
“Every year before that, it was ticking up,” Karger said. “There has been a 10% decline in street homelessness, which shows that programs like Inside Safe, which are bringing people into temporary housing, are also working.”
Permanent housing move-ins have doubled since before Bass took office and thousands of Angelenos have moved inside, according to the mayor’s office. The numbers are coming down, according to the mayor, partly because historic changes have been made to policy, practice and law to speed up programs to tackle the problem.
There also has been a significant drop in reported homicides and shooting victims and improved health and safety responses from the Los Angeles Fire Department.
Bass also announced jointly with environmental leaders an increase in green jobs, the expansion of electric vehicle infrastructure and improved alternative water access.
The mayor introduces her annual budget on April 20, so there are months to go in that process.