Controller Galperin Warns of Tough Budget Choices as L.A.’s Pandemic Recovery Continues

LOS ANGELES — L.A. Controller Ron Galperin today released the 2021 Preliminary Financial Report, a snapshot of the City’s balance sheet for the fiscal year that ended on June 30, 2021. He found that City revenues were slightly higher than the prior year and expenses were lower, noting that $1.28 billion in federal American Rescue Plan (ARP) Act funds helped the City weather the pandemic and create a slew of new public programs. But Galperin warned that those programs could face cuts or elimination next year. To supplement the report, he created interactive online visualizations for exploring the City’s revenues, spending, reserves and debt: lacontroller.org/pfr2021.

“Last year was unlike any other,” said Controller Galperin. “The pandemic hit our neighborhoods and the economy, putting the City in a revenue crunch. A combination of belt-tightening and federal assistance helped Los Angeles get back to a solid financial position, but funding for new homelessness and equity programs will dry up next year, creating tough spending choices. If we want to continue to pay for these priorities, the City should focus on programs that work, cut those that don’t and invest in neighborhoods where the most help is needed.”

An unprecedented year

  • Total revenues in budgeted funds were $9.23 billion last year, a 0.7% increase over the previous year. This amount does not include ARP assistance, which helped the City end the year with a cash surplus.
  • Total expenditures were $8.8 billion, 1.7% lower than the year prior, largely due to the City’s hiring freeze and wage cuts assumed by employees.
  • While L.A. tapped its reserves during the pandemic to keep the City running, the Reserve Fund balance in July 2021 was the highest it has ever been, $647 million or 8.62% of General Fund receipts.
  • Retirement costs increased 2% to $1.43 billion, 15.3% of overall spending.

Tough choices ahead

Although the last fiscal year was solid thanks to lower spending and federal assistance, funding problems will arise in next year’s budget.

  • Use of one-time funding to create new programs: The current budget used ARP funding to create new programs aimed at building equity, alleviating homelessness and increasing justice in the City; it also used money from prior year appropriations, including $70 million from the Police Department. None of this one-time funding will be available next year, leaving these programs at risk.
  • Higher employee expenses: City employees sacrificed last year to help the financial picture. Most of the City’s workforce will receive raises soon and see new labor contracts negotiated thereafter, which could lead to additional costs.

What L.A. should do

To address these issues, Galperin recommended that the City take these steps:

  • Focus on revenue and control costs: Because tourism-related revenues are still down, the City must work harder to collect from other revenue streams and limit additional spending increases.
  • Support successful new programs and cut those that aren’t: The programs created with one-time funding should be assessed throughout the year; only successful ones should be funded next year.
  • Maintain a strong Reserve Fund. Keep it high in case of a future emergency.
  • Use debt financing to build equity: The City can use debt financing to create jobs through infrastructure projects. These efforts should benefit disadvantaged communities to achieve greater regional equity.

Explore the Preliminary Financial Report at lacontroller.org/pfr2021.

Follow L.A. Controller Ron Galperin at @LAController on Twitter, Facebook and Instagram.

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