L.A. Controller Reports COVID-19 Financial Woes Will ‘Get Worse Before They Get Better’
LOS ANGELES – Controller Ron Galperin today released L.A.’s Comprehensive Annual Financial Report for Fiscal Year 2020 — July 1, 2019 to June 30, 2020 — which details the City’s finances and charts the full scope of the initial economic fallout caused by the COVID-19 pandemic. After eight years of revenue growth, total City revenues decreased in FY20, while expenses increased. The 400+ page report is also available in a brief online version that illustrates how taxpayer dollars are spent by the City. Explore the report at lacontroller.org/cafr2020.
“The last fiscal year was truly unprecedented. The first three quarters were powered by solid revenue growth and, in the final quarter, the economy took a nosedive when the pandemic reached California,” said Controller Galperin. “More than 10 months later, we are just starting to reopen, but we know that cannot happen as quickly as Angelenos want or need. It’s almost certain that the City’s financial woes will get worse before they get better. We can get through this, but it is going to take hard work, creativity and sacrifice to overcome these challenges.”
It is not yet clear when L.A.’s economy will begin to emerge from this global crisis, but the damage already done has hit the City hard.
REVENUES ARE DOWN
- In FY20, overall City revenues decreased by 4% to $17.5 billion, in contrast with FY19 when L.A. experienced 13.7% revenue growth. The change is attributable to the pandemic and its immediate impact on trade, tourism and tax revenues.
- The story was slightly different looking just at the General Fund, the City’s main operating fund, which saw modest growth in FY20. However, General Fund revenues in the first six months of this current fiscal year are down 10.8% or $254 million — significantly lower than the same period last year. How much they will continue to suffer in the days ahead depends on how quickly the economy can begin to reopen safely and recover.
EXPENSES ARE UP
- Overall City expenses shot up by 9.9% to $16.5 billion in FY20, with General Fund expenses up by 7.3%. The cost of salaries and benefits increased by $253 million and retirement contributions by $88 million over FY19. The City’s three pension systems saw just a 3% return in FY20, but are collectively 85% funded.
- The trend of rising expenses has continued in the first six months of the current fiscal year, with General Fund expenditures up 1.4% or $43 million over FY20, largely due to COVID-19 response activities, some of which are eligible for reimbursement.
ACTION ON HOMELESS HOUSING NEEDED: Voters approved Measure HHH in 2016, a $1.2 billion bond to build thousands of homeless housing units. With $362 million in bonds issued, the City spent $100 million on HHH projects in FY20 bringing the total spent to $163 million. Yet, as of last month, fewer than 500 units are ready for occupancy. As noted in Galperin’s October 2020 HHH report, the City should use every possible tool to build homeless housing faster and cheaper to keep pace with the deepening crisis.
WHAT SHOULD L.A. DO TO STABILIZE ITS FINANCES?
- Pursue federal and state funding: The City should vigorously pursue additional federal and state funding to protect core services and assist with ongoing pandemic response efforts, while seeking to maximize the effectiveness of the outside assistance already received, but not yet spent.
- Use special funds to lessen pandemic pain: The City relies on 700+ special purpose funds to maintain parks, build affordable housing, pick up trash and more. The balance of these funds has grown to $5.1 billion and the City should do more to utilize the funds that are sitting idle or rarely used. Millions could be repurposed to bolster the City’s bottom line and meet community needs.
- Focus on revenue and limit spending: While tourism-related revenues dropped, the City must work harder to collect from its other revenue streams and continue working with stakeholders to defer expenses where possible.
- Rebuild the Reserve Fund: To balance the FY20 budget, the City transferred nearly $200 million from its reserves to the General Fund. With plans already being made to further deplete the Reserve Fund to balance the current budget, the task of rebuilding it will become even more critical.
TRACKING CITY ACTIVITIES
In keeping with his commitment to transparency and accountability, Galperin also posted online dozens of interactive charts and graphs that measure City performance metrics in FY20 versus previous years, many of which were impacted by COVID-19. Highlights from the report include:
- Airport visitors dropped. 62.7 million visitors passed through the Los Angeles World Airports in FY20, down from a decade high of 87.9 million in the year prior — a 25.2 million decline caused by the 70% decrease in travel and tourism that began when the pandemic hit.
- L.A. provided more meals to seniors and people in need. Homebound Angelenos received 813,000 meals in FY20, far more than the 707,000 provided last year. L.A. also served 750,000 meals to people at community and senior centers, compared to 624,000 in FY19, showing an increased demand for food access.
- L.A. Zoo attendance plummeted by more than 600,000 visitors from 1.8 million in FY19 to 1.2 visitors in FY20 due to the COVID-19 shutdown. The prolonged closure also reduced the ability of students and visitors with subsidized tickets to go to the Zoo, with just 50,000 attending in FY20 compared to 130,000 the year before.
Check out all the City metrics and read the full report at lacontroller.org/cafr2020.