L.A. Controller Reports on City’s Pandemic Financial Strain and Strategies to Stabilize and Recover

LOS ANGELES — Controller Ron Galperin today released the 2020 Preliminary Financial Report, a snapshot of the City’s balance sheet for the fiscal year that ended on June 30, 2020. He found that City revenues were slightly above those in fiscal year 2018-19, but still came in $200 million under the adopted budget. To supplement the report, Galperin created interactive tools that allow users to explore the City’s revenues, spending, assets and liabilities: lacontroller.org/pfr2020.

“What started out as a good financial year, quickly went bad once the coronavirus pandemic hit Los Angeles and the rest of the nation,” said Controller Galperin. “Record years of growth were wiped out as Angelenos lost jobs and businesses were forced to shut down. Although we’re in for a tough period ahead, the City has an opportunity to invest in long-term infrastructure improvement projects and create jobs for people in disadvantaged communities. We have to find ways to increase equity as the City moves through this unparalleled crisis.”

Sobering reality

  • General Fund revenues grew by only 2.3% last fiscal year, coming in 3.7% short of projections due to COVID-19.
  • The sudden drop in travel and tourism caused Transient Occupancy Tax revenue to plummet 22.4% ($73.1 million) below projections — 20.5% ($65.3 million) less than the year prior. These revenues have continued to tumble in the months since, with the travel and tourism industries now down by 70% to 80%.
  • Spending jumped 10% to $9.7 billion as a result of salary increases and capital improvement projects. Seventy five percent of the increase was attributable to employee salaries and benefits. Responding to the public health crisis further stressed the City’s finances.
  • Retirement costs increased approximately 7% to $1.28 billion, 14% of overall spending.

No one knows when L.A.’s economy will begin to emerge from this global crisis, but the damage already done is impacting the City’s coffers. Nearing the midpoint of the current fiscal year, the hope of a quick economic recovery is unlikely, casting doubt on revenue projections and expenses for this fiscal year. Galperin urged the City Council to consider this as it revisits the budget and urged it to closely monitor spending in the coming months.

What should Los Angeles do?

To address looming financial issues, Galperin recommended that the City do the following:

  • Focus on revenue and limit spending: While tourism-related revenues dropped, the City must work harder to collect from its other revenue streams and collaborate with stakeholders to prevent further spending increases.
  • Rebuild the Reserve Fund: To balance the budget, the City transferred nearly $200 million from its reserves to the General Fund, highlighting the need to rebuild this critical resource, which exists for emergencies like this.
  • Leverage City properties and special funds: The City owns hundreds of unused or underutilized properties and has billions of dollars in special funds. Policymakers should determine whether either can be used to improve the City’s financial position and help Angelenos.
  • Expand infrastructure programs to rebuild communities: Given the present revenue crunch, the City should explore debt financing opportunities to create jobs through infrastructure projects, including street and sidewalk repair and information technology modernization. These efforts should be concentrated in areas of the City most impacted by COVID-19 and historically disadvantaged communities to achieve greater equity throughout Los Angeles.

Explore the Preliminary Financial Report at lacontroller.org/pfr2020. Galperin will release his Comprehensive Annual Financial Report for the last fiscal year in early 2021.

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

 

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