Los Angeles In “Financial Bind” & Faces “Tough Choices” Ahead, City Controller Says

The City of Los Angeles currently is in a “strong financial position” but is facing a “financial bind” and will need to make “tough choices” in the next budget, according to City Controller Ron Galperin.

“The pandemic hit the economy and our neighborhoods hard last year, putting the city in a financial bind,” he said upon the release of L.A.’s annual report for fiscal year 2021, which ended June 30. “Cost-cutting measures and federal funding helped Los Angeles get back on solid ground, but there are tough budget choices ahead.”

See the full report here.

In his report to Mayor Eric Garcetti, Galperin noted: “Although the City is currently in a strong financial position, significant challenges lie ahead. The one-time revenue provided by the federal government will be gone by the end of fiscal 2022. When that time comes, the City will face difficult decisions on how to continue supporting the programs made possible by that funding, while also confronting new labor negotiations and rising inflation.”

Galperin warned that “funding problems will arise in next year’s budget. The current budget used $300 million from the federal government to create new programs to build equity and alleviate homelessness; it also used money from prior year appropriations, including $70 million from the Police Department. This one-time funding will not be available for the next budget, leaving these programs at risk. In addition, most of the City’s workforce will receive raises this summer and new labor contracts will be negotiated, which could lead to additional employment costs.”

Galperin recommends that the city “focus on collecting more revenue and limiting spending, while also finding ways to better use special funds to improve L.A.’s financial picture.”

In fiscal 2021, “overall City revenues increased by 5.2% to $18.4 billion, a positive shift from the 4% decrease the year before,” Galperin reported. “The change is partly attributable to increases in property, sales and other taxes collected. Overall City expenses continued to climb, rising by 4.8% to $17.3 billion, although the upward trend slowed from the nearly 10% increase the year prior.”

The report adds, “Licenses and permits went down by $5.6 million or 16.0%, mainly due to the decrease in filming permits fee revenue during the pandemic,” while travel and tourism plummeted, as did attendance at the L.A. Zoo.

The number of airport visitors fell to just 29 million during the last fiscal year, down from 63 million visitors in fiscal 2020 – a 34 million decline “caused by a 70% to 80% overall decrease in travel and tourism that started when the pandemic hit.”

Attendance at the L.A. Zoo also “plummeted,” the report says, noting that the number of visitors dropped from 1.19 million in fiscal 2020 to 656,000 in fiscal 2021 due to Covid-19 restrictions.

The number of meals the City provided to seniors and people in need, however, climbed significantly. Homebound Angelenos received 999,000 meals in fiscal 2021, compared with 813,000 in the year prior. L.A. also served 1.17 million meals to people at community and senior centers, compared to 750,000 in fiscal 2020, showing an increased demand for food access.

“The City needs to thoroughly and honestly assess the performance of these programs this fiscal year to determine which are successful and which are falling short of their goals,” the annual report says. “In addition, the financial stress created by the pandemic has highlighted the urgent need to examine the City’s hundreds of special purpose funds — which ended FY 21 with a cumulative balance of $5.1 billion — to determine how they can be better utilized to bolster the City’s financial position and improve local communities.”

The Controller’s office said it will be issuing a report later this year with recommendations on how to accomplish these goals. “Despite the unique nature of the economic situation at hand,” the report says, “a look at the past fiscal year provides insight into vital budget decisions to come. A willingness to evaluate newly funded programs, coupled with continued responsible financial management, will bolster the City’s ability to maintain the type of quality services that Angelenos expect and deserve.”