Coronavirus Crisis: Economic Uncertainty Could Impact LA Budget

CITY BUDGET WATCH--I released the City’s revenue forecast today, highlighting projected growth in crucial revenue sources, but also warning of increased government spending and the impact of economic uncertainty on the City’s coffers.

The annual “Revenue Forecast Report,” online at lacontroller.org/revenueforecast2021, provides updated estimates of the current year’s General Fund and special fund revenues, and also estimates how much money the City will bring in over the next fiscal year.  

Our local economy is healthy today, but expenses are rising and recent global economic concerns could impact City revenues this year. The fallout from the coronavirus has already resulted in fewer shipments to the Port of LA and, if it continues, the effects could ripple throughout the City. While it is unclear what will come to pass, the best way to protect the City in the face of uncertainty is to budget with restraint, and make every effort to expand sources of revenue that aren’t as susceptible to the ups and downs of the market. 

The forecast features City revenue estimates to help inform the Mayor and City Council as they discuss the City’s fiscal year 2021 budget this spring.  

The good:

• General Fund revenue is up six percent to $6.61 billion for fiscal year 2020, 0.7 percent higher than the amount budgeted. Next year, the General Fund is set to increase another 3.2 percent.
• Cannabis-related taxes will generate $128 million for the City this year: $84 million in business taxes, $30 million in sales tax and $14 million in permit fees. The overall number will grow if the City intensifies its efforts to permit new cannabis businesses and enforce against illegal ones.
• Because of my 2014 audit and partnership with the City Council to update Street Damage Restoration Fee, the City will receive $54 million in revenue this year, up from under $10 million per year historically. 

The not-so-good:

• Expenses will eclipse revenue growth this year due to the increased cost of employee salaries and benefits. Short-term fixes can help the City’s bottom line now, but any unanticipated economic stress could put LA in a far more precarious financial situation.  
• Concerns are emerging over the coronavirus disease. The Port of LA is projecting a 25 percent drop in cargo volume this month and 12 to 15 percent over the first quarter of the year. The stock market just had its worst week since the financial crisis, and air travel to the United States could also contract, affecting the City’s collection of sales tax, hotel tax and the local economy as a whole.
• Changing consumer habits are causing some revenue sources to drop significantly, including the telephone users tax, which will continue its downward slide from $267 million in 2010 to $132.7 million this year — a 50 percent drop over 10 years.
• Enforcement of the City's home-sharing ordinance has resulted in a 49 percent decrease in listings across all hosting platforms, making it necessary for the City to closely monitor transient occupancy tax receipts for any future negative impacts. 

The Revenue Forecast Report and an online interactive tool for exploring it are located at lacontroller.org/revenueforecast2021. 

(Ron Galperin is LA Controller. Follow him at @LAController on Twitter, Facebook and Instagram.)

-cw