Los Angeles on the Brink of Fiscal Emergency
Direct Consequences of Liability Payouts
Los Angeles is facing a dire financial situation, with its finances in disarray and no money to cover unexpected expenses after a series of lawsuit payouts blew a hole in the city’s already-tight budget. The city is on the hook for $258 million in liability costs in the first three months of the fiscal year, with 40% related to police department negligence or use of force, and 15% involving employment cases.
The Cause of the Problem: Overstretched Budget and Expensive Raises
The liability expenses are the immediate cause of the dire financial picture, but the budget adopted by Mayor Karen Bass and the City Council was already overstretched due to expensive raises for police officers and civilian employees approved in the last fiscal year.
City’s Reserve Fund in Jeopardy
The city started the new fiscal year in violation of its own financial policy to maintain a reserve fund, with a balance of 4.12% of the $8-billion general fund budget. If all liability costs are paid from reserves, the fund would drop to 2.8%, requiring the council to declare a fiscal emergency.
Measures to Stabilize the City’s Finances
City leaders are considering extreme measures to restore the reserve fund, including borrowing money to pay off some judgments and settlements, adding interest to the initial cost. The city will also likely slow or stop some city employee hiring, reducing basic services such as street repairs, park maintenance, and code enforcement.
Challenges Facing the City
The city’s financial woes stem from approving employee raises the city cannot afford, followed by cuts to staffing and services, hoping for an economic boom to lift tax revenue. This feast-or-famine pattern makes it harder for the city to follow through on long-term investments.
Solutions to Fix the Budget
To fix L.A.’s budget, city leaders need to transition to multi-year budgeting, planning spending commitments in advance. The city should also be more transparent about employee labor deals, with an independent analysis of the impacts. Public discussion is necessary on employee contract negotiations and the agreement to provide $1 billion in police raises over four years.
Prioritizing Services and Core Responsibilities
City leaders must decide what services the city can afford to provide and what can be cut. Public safety is essential, but what tasks can civilian employees perform more efficiently, allowing sworn police officers to focus on responding to and resolving crimes? The city should also consider what services it can provide and what are the responsibilities of other government entities.
New Initiatives for Improvement
On Wednesday, Bass announced a steering committee to better plan and coordinate construction and upkeep of public infrastructure. While a long-term capital infrastructure plan is better than the current situation, committees and efficiencies alone will not fix the city’s financial woes.
Conclusion
It will take the mayor and the City Council making hard choices over several years to get the city on stable financial footing.
Frequently Asked Questions
Q: What is the current financial situation of Los Angeles?
A: The city is facing a dire financial situation, with its finances in disarray and no money to cover unexpected expenses after a series of lawsuit payouts blew a hole in the city’s already-tight budget.
Q: What are the main causes of the financial woes?
A: The liability expenses are the immediate cause, but the budget was already overstretched due to expensive raises for police officers and civilian employees approved in the last fiscal year.
Q: What measures is the city taking to stabilize its finances?
A: City leaders are considering extreme measures, including borrowing money to pay off some judgments and settlements, adding interest to the initial cost, and slowing or stopping some city employee hiring, reducing basic services such as street repairs, park maintenance, and code enforcement.
