LA faces depleting reserve fund to remain solvent

A view of City Hall in downtown Los Angeles, Calif.
A view of City Hall in downtown Los Angeles, Calif.
Omar Omar/Flickr CC

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The City of Los Angeles faces an increasingly dire financial picture. L.A.’s chief administrative officer Monday said the city will have to deplete its emergency reserve fund almost completely to remain fiscally solvent this year. He said Los Angeles will also have to lay off hundreds of workers to address its budget deficit next year.

Los Angeles faces a $200 million budget deficit for the fiscal year that ends June 30.

That’s largely because a projected $75 million drop in tax revenues has grown to $185 million.

“The economy has had a much bigger impact on the city’s revenues than any one of us could have anticipated" said Miguel Santana, the city's chief administrative officer.

He told the City Council’s budget committee that the only way to address the deficit by the end of the fiscal year is to draw down the emergency reserve fund to $30 million, a dangerously low level.

He called the number "disturbing" and a "a red flag to our investors that we are at the tipping point.”

City Councilman Jose Huizar warned against the move. He said if projected tax revenues declined even further, or there was an emergency, the city would run out of cash.

“What’s being proposed is high risk," said Huizar. "I’ve been very reluctant to use the ‘B’ word but if we go down that path, it’s going to expose us tremendously to bankruptcy.”

Santana responded that he hoped to partially replenish the reserve fund by selling off city parking structures.

L.A.’s chief administrator already has proposed eliminating at least a thousand city jobs – including a hundred positions at the city attorney’s office.

But most of the savings wouldn’t kick in until next year when the city faces another $400 million deficit – caused in part by a burgeoning pension obligation.

Following previous direction from the mayor and city council, Santana protected police and fire personnel in his recommended layoffs. Councilman Bernard Parks said Santana should now ignore that direction, given the city’s worsening financial picture.

“There is an elephant in the room," said Parks. "You’re trying to balance the budget on 30 percent of the budget. There’s 70 percent of the budget that’s public safety.”

Parks – who chairs the budget committee – asked Santana to look at cuts to the police and fire departments as well as to the budgets of the mayor and city council.

Councilman Paul Koretz wondered if so many layoffs were necessary.

“I’m certainly uncomfortable with what we’re looking at in terms of layoffs," said Koretz. "I’m wondering whether we’ve looked at everything else that we should be looking at first.”

Labor union leaders representing city workers vowed to fight any layoffs, which would follow an early retirement plan that’s ushering 2.400 employees out the door.

Bob Schoonover is with the Service Employees International Union Local 721, whose workers already are taking mandatory unpaid days off and paying more into their pensions.

“Shared sacrifice actually means shared sacrifice – not the same group of people every time.”

Asked if he wants to see the police and fire departments sacrifice more, Schoonover said "I want to see everything, OK, Everything considered, OK.”

Labor unions wield considerable power at City Hall, having poured a lot of money into helping the mayor and many council members get elected.

Chief Administrative Officer Santana also recommended closing or cutting back a variety of departments, including Environmental Affairs, Cultural Affairs, Neighborhood Councils, Human Services and the Department on Disability.

“We’re here to ferociously oppose the closing of the Department on Disability," said Lillibeth Navarro, a disability rights activist. "Where are our priorities? Where are people with disabilities in your priorities?”

Navarro was one of hundreds of people who packed City Council chambers – angry, worried and frustrated that the services provided by city government in Los Angeles will shrink as the full force of the recession hits tax revenues.

The City Council will begin making its budget decisions in the coming weeks. Santana said waiting any longer would threaten the city’s financial stability.