CommentsLA WATCHDOG--The City is projecting a year-end budget deficit of almost $100 million according to the Second Financial Status Report dated December 4, 2015.
This shortfall is primarily the result of the City Attorney’s projection that liability claims associated with legal judgements and settlements will soar to $138 million for the year ending June 30, 2016, an $84 million increase from the budgeted $54 million.
While the specifics of this 155% increase have not been disclosed, “much of the shortfall is attributable to a small number of extremely significant cases arising from incidents or conduct which occurred many years ago.” More than likely, however, the Los Angeles Police Department is responsible for a good chunk of this increase as the LAPD has been responsible for almost 60% of the $272 million in payouts over the last five years.
But how does the City intend to cover this projected $100 million budget deficit?
One alternative would be to raid the $375 million Reserve Fund. But this would deplete this rainy day fund to a level of 5% of the $5.4 billion General Fund, an amount $50 million short of the 6% target recommended by the City Administrative Officer and $266 million below the 10% level suggested by many public finance experts.
Besides, in preparing the Budget eight months ago, Mayor Eric Garcetti, the Budget and Finance Committee chaired by Paul Krekorian, and the Herb Wesson led City Council already raided the Reserve Fund for $130 million.
The City also has the option to issue $100 million of Judgment Obligation Bonds to cover this projected deficit. In City speak, this would “save” the City $100 million. In reality, this bond offering would be dumping the sins of the past onto a future generation of Angelenos who would be burdened with annual debt service payments of $13 million for the next ten years.
The third (and preferred) alternative would be to allocate the $138 million in liability claims to the responsible departments who would then have to determine how to pay for the messes they created. This would also have the added benefit of increasing the accountability of the Police Chief and other department managers as they would be responsible for the actions of their employees and the impact on their budgets.
Certain members of the City Council believe the City will be bailed out as revenues will exceed the budgeted General Fund receipts of $5.4 billion. But this opinion may be wishful thinking as budget revenues already represent a hefty 5% increase from the previous year. Furthermore, revenues through the first four months of the fiscal year are off by $40 million because of lower property tax collections and lower revenues from the City Utility Tax levied on DWP Ratepayers.
This $100 million deficit does not include any real money for the City’s homeless initiatives or any appropriations or reserves related to the havoc from the El Nino storms that are expected to drench California this winter.
The Second Financial Status Report highlights the fact that the City, like many of its businesses and employers, is a victim of California’s legal system that is consistently ranked as the top “Judicial Hellhole” in the country. This will result in cutbacks to an already tight City budget and should result in calls to reform our civil justice system, a move that will alienate the campaign funding plaintiff’s bar.
For example, the $84 million hit for liability claims would fund the City’s homeless initiative, repair miles and miles of our lunar cratered streets, or allow the Planning Department to update the City’s outdated Community Plans.
It also puts the Mayor and the Herb Wesson led City Council on notice that the City does not have the financial flexibility to introduce new initiatives unless it is willing to reallocate revenues, a painful process that will result in significant pushback from the targeted departments, or to outsource operations to more efficient service providers, a move that would cause the City’s unions to go ballistic.
Over the next four months, the Mayor, the City Council, and the City’s budget mavens will be working on next year’s budget behind closed doors. How will they cover the $100 million deficit and fund existing programs and new initiatives? How will they pay for higher pension contributions; the repair of streets, sidewalks, and parks; and its new labor contract?
Stay tuned. 2016 is already shaping up to be an interesting year.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and a member of the Greater Wilshire Neighborhood Council. Humphreville is the publisher of the Recycler Classifieds -- www.recycler.com. He can be reached at: [email protected])
-cw
CityWatch
Vol 13 Issue 103
Pub: Dec 22, 2015
Legal Settlements Eating the City’s Lunch
