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LA WATCHDOG - The City budget is in a world of hurt. On Wednesday, the City Administrative Officer informed the City Council that the upcoming budget which begins on July 1 is projected to be in the red by about $1 billion. This will require substantial cuts (aka savings), including the layoff of thousands of City employees.
Underlying this “budget imbalance” are many factors: lower than the overly optimistic forecasted revenues that were expected to pay for budget busting labor agreements, higher liability claims related to legal settlements and judgments, increased pension contributions, higher subsidies for trash collections for single family residences, and the need to replenish the depleted Reserve Fund.
But this is just a continuation of the last two years. For the Fiscal Year that ended on June 30, 2024, expenditures were $300 million over plan and revenues were $300 million under plan. Part of this $600 million deficit was covered by raiding the Reserve Fund for over $300 million while the balance resulted in reduced services by many departments.
In the current fiscal year that ends on June 30, the budget is more than $400 million in the hole because of over expenditures of $300 million and revenues that are $100 million less than planned.
Overall, the Reserve Fund has been depleted, from a high of $650 million in June of 2023 to $125 million (1.5% of General Fund revenues) when all over expenditures are recognized. While this lower level would force the City to declare a fiscal emergency, our elected elite are playing games to avoid this disclosure, delaying the recognition of hits to the Reserve Fund.
While Mayor Bass and Councilmembers Harris-Dawson and Yaroslavsky have penned various solutions to this budget crisis, their emphasis has been on balancing the upcoming budget. But neither has addressed the fundamental problem: budget busting labor agreements.
When the Mayor presented her Proposed Budget on April 20th of last year, she said that the Structural Deficit was a thing of the past because the Four Year General Fund Budget Outlook showed a surplus of $160 million in the fourth year (2028-29). But this forecast did not account for future labor contracts which, if considered, would result in a shortfall of over $300 million.
The first reform would require that all labor negotiations must be conducted in an open and transparent manner. This would require the City to disclose proposals and counterproposals made at the bargaining table, to use independent auditors to cost out proposals, to provide reports summarizing negotiation sessions, and to allow public comment prior to approval of a collective bargaining agreement.
Another basic reform would be an ordinance followed by a ballot measure that would prohibit the City from entering into any labor agreement that would create a current or future deficit. This would require any labor contract to be fully funded based on actual or anticipated revenues using reasonable assumptions and not on revenues subject to voter approval. Importantly, the burden of proof would be on the City.
The Mayor and City Council will be reluctant to implement these two reforms because of the objections of the City’s public sector unions. On the other hand, we can exercise the power of the purse by rejecting any increases our taxes, whether it be a parcel tax or the issuance of bonds.
We will see what the Mayor says when she submits her Proposed Budget to the City Council on April 20th. And what the City Council proposes prior to its approval of the Adopted Budget prior to June 1st. And be sure to wear your hip boots when listening to our elected elite during budget season.
(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].)
