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Politics Jan 24, 2024
Los Angeles City Hall. | Photo courtesy of the Office of the Controller
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City Controller Kenneth Mejia said Tuesday that Los Angeles needs to cut its expenses in the coming months, and might cut noncritical positions, as the latest report on the city’s financial status showed nearly $300 million in over-expenditures.
“Unfortunately, this was not a surprise. Last year, the Controller’s Revenue Forecast urged a conservative approach to revenue projects and noted that ‘expenses are on track to increase considerably next fiscal year,'” Mejia said in a statement.
He warned that without a long-term approach to putting the city’s fiscal house in order, short-term decisions will “doom Los Angeles to inexorable decline in public services, undermining our quality of life and economic prospects of our residents.”
The controller advised that the city consider a transition to a two-year budget cycle, which would save staff time, give more opportunity for meaningful community participation and allow for a more strategic approach to the city’s finances.
“Given the daunting financial realities, the city needs to undertake a strategic reallocation of resources to what matters most to the long-term well-being of all of our residents,” Mejia said. “Budgets are not just numbers, they are a statement of values. As our city changes, so should our financial priorities.”
On Friday, a city administrative officer’s report recognized the city’s revenues are far below projections while spending is significantly higher for the 2023-24 fiscal year. General Fund revenues are $158 million below the budgeted plan, and the largest area of overspending is sworn salaries in the Los Angeles Police Department’s new labor agreement.
The CAO’s report said the city might be able to recover a portion of the estimated $158 million, but there is concern that the largest shortfall is related to taxes. Business and sales taxes are $32 million and $18 million below plan, respectively, due in part to recent strikes and declining demand because of inflation.
Additionally, a tax related to tourism is estimated to be $15 million below plan, which could be attributed to lower international tourism, and another tax related to the transfer of property is $25 million below plan as higher interest rates continue to impact sales volume and price.
Most city departments have budget surpluses due to salary savings and high vacancy rates, according to the report. Additionally, the CAO noted a projected budget gap between $350 million to $400 million of costs exceeding revenues in 2024-25 as a result of new labor agreements.
The CAO’s report recommended eliminating noncritical vacant positions from the city’s budget as a means to “match” ongoing expenditures with ongoing savings on both salary and pension costs in the 2024-25 fiscal year, and subsequent years.
Further recommendations would have the CAO’s office implement a process for prioritizing critical hiring. Noncritical vacant positions would be identified and cut as part of a “prioritized hiring review process” and be extended through the budget development process.
The CAO’s office would also review how the elimination of positions would impact services, programs and other organizational components of the city, and offer recommendations to ensure service delivery.
New source revenues would also aid in addressing the city’s looming deficit, and the CAO would consider updating fees for service and possible ballot measures as well.
The recommendations will be reviewed during the LA City Council’s Budget, Finance and Innovation Committee on Wednesday afternoon.
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