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LA WATCHDOG - The City does not have adequate reserves to fund next year’s projected shortfall of $250-$300 million and the expenditures that will be required to address the damage caused by the wildfires that wiped out Pacific Palisades.
As of July 1, 2023, the City had reserves of almost $800 million, consisting of the Reserve Fund ($570 million), the Budget Stabilization Fund ($200 million), and other reserves ($30 million). These reserves were equal to 10% of General Fund revenues.
According to the Second Financial Status Report of December 6 from the City Administrative Officer, reserves were down to $525 million. Underlying this $275 million decrease over the past 18 months was the impact of budget busting labor agreements, significantly larger than expected liability claims, overly optimistic revenue projections, and unbudgeted departmental over expenditures.
This does reflect the impact of additional $225 million hit associated with additional liability claims and departmental over expenditures, leaving reserves of only $300 million (3.75% of General Fund revenues).
On January 22, the City Administrative Officer told the City Council that the fiscal impact of the wildfires on the City was $300 million after excluding a $75 million hit to the Department of Water and Power. This includes $25 million in personnel costs and $275 million of infrastructure damage to the Recreation and Parks, the Public Library, Sanitation, and Street Lighting.
According to the CAO, there will be additional reports on damage to the City’s infrastructure. There were also discussions about help from Washington and Sacramento, but no specifics. In addition, the City will have to fund the upfront costs of any recovery expenditures which will eventually be reimbursed by the Feds. But that can be a long and drawn-out process as was the case with the Northridge earthquake.
While the City has not developed a long-term plan to address the impact of the wildfires, the Mayor and the CAO will be challenged to balance the upcoming budget that must be submitted to the City Council by April 20.
Prior to the wildfires, the budget shortfall was expected to be $250-300 million. But this shortfall will increase with all the costs of fighting the wildfires such as overtime for the firefighters and police. To date, the CAO has identified $25 million, an amount that is expected to double or triple.
Revenue loss will also be “acute” because of the adverse impact on the economy, property taxes, and the other economically sensitive taxes.
To aid in transparency, the Budget and Finance Committee chaired by Councilwoman Katy Yaroslavsky instructed the CAO to report on revenue generation opportunities and that the report should include a review of the City’s Four-Year Budget Outlook, hopefully with assumptions about the increase in labor costs over the four year period.
As part of this year’s budget process, the City should begin a discussion to reform its budget and finances so that we are never placed again in a situation where budgets are a river of red ink and the reserves are depleted and incapable of addressing a true emergency.
We cannot be a world class city with a third world budget and neglected infrastructure.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee, the Budget and DWP representative for the Greater Wilshire Neighborhood Council, and a Neighborhood Council Budget Advocate. He can be reached at: [email protected]. )
