Los Angeles City Council members said Monday they may have to revisit plans to furlough or lay off public employees after the latest financial report showed the city could be in a worse financial situation than previously thought due to the COVID-19 pandemic.
City Administrative Officer Richard Llewellyn on Friday issued a grim report on the city’s financial forecast, which showed Los Angeles could lose as much as $600 million in revenue this year due to the pandemic.
“We need to all be very clear and very prepared for the idea that a reduction of the kind of the magnitude we’re talking about is going to mean a loss of services, significant loss of services from people or a significant loss of compensation to those people, one or the other,” said Councilman Paul Krekorian, who chairs the council’s Budget and Finance Committee. “And so it’s going to be imperative, as we move forward … to get very clear proposals from every department about their cost-reduction plans.”
Krekorian said he didn’t have specific recommendations to give the committee Monday, but he said financial challenges will need to be addressed soon.
City Council members had been taking a look in recent weeks at new plans under which fewer city employees would be furloughed than originally proposed. But as the pandemic has worsened, that may no longer be possible, Krekorian said.
“It’s not something that any of us wants to hear, but we have to hear it because there’s no getting around this, there’s no denying it,” Krekorian said. “There’s no way to soft-pedal the emergency situation the city faces as a result of the extraordinary emergencies that our nation is facing with COVID-19.”
Krekoian told the Budget and Finance Committee that it took Los Angeles eight years to build up nearly a half-billion dollars in reserves following the 2008 recession. Those reserves have been battered in response to the pandemic, and Llewellyn’s report showed they could be all but gone by next year if major changes to the city’s finances are not made.
“The magnitude of this revised year-end revenue gap cannot be understated,” Llewellyn wrote in his report. “A $400 million revenue gap is equal to 6% 2020-21 budget and would exhaust all but $14 million of the city’s total reserves, inclusive of the Reserve Fund, Unappropriated Balance Reserve for Mid- Year Adjustments, and Budget Stabilization Fund.”
The city’s reserves entering the 2020-21 fiscal year were about $243 million in total, about 3.9% of the general fund budget. That’s well below the city’s aspirations of having 5% in reserves across the board, and lower than the almost 8% it had prior to the pandemic.
“Based on the September receipts and other confirmed shortfalls that will be realized in the months ahead, our prior year-end revenue gap estimate of $200 million to $400 million has shifted upward by $200 million,” Llewellyn said in his first-quarter financial status report for 2020-2021. “Our revised year-end revenue gap estimate range is now $400 million to $600 million.”
Llewellyn told the Budget and Finance Committee that the city will balance its budget by the end of the next fiscal year, “no matter how bumpy the next months are.”
“I don’t want to be pollyannish about making our decisions, but I do think it’s an important message,” he said.
The CAO said in his latest report that for every month that COVID-19 health protocols affect local businesses and city services, revenue projections will continue to fall short.
“Without federal assistance, it’s clear that the budget impact of the COVID-19 pandemic will cause catastrophic service cuts,” Alex Comisar, a spokesman for Mayor Eric Garcetti’s office, told City News Service on Friday.
“The mayor is addressing this shortfall with a variety of cost-saving measures and has directed departments to prepare for layoffs,” he said. “But this report shows that we, along with cities and states across the country, need Washington to step up, and we need that help now.”
A federal stimulus package that could be coming to cities has been stalled in Congress and may not be authorized until after the Nov. 3 election.
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