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L.A. Finances May Be Worse than Expected Next Fiscal Year, City Officials Say

Reporter Roundup is a collaboration between PBS SoCal/KCET and KPCC/LAist to bring you the biggest headlines M-F about COVID-19. Watch the May 20 episode here.

LOS ANGELES (CNS) - Los Angeles may find itself in a worse financial situation than envisioned in the mayor's proposed budget for the next fiscal year due to the COVID-19 pandemic, city officials said today.

According to Chief Legislative Analyst Sharon Tso, the city's Office of Finance is anticipating 2021 tax revenues will be a minimum of $45 million short of Mayor Eric Garcetti's proposed budget and could fall short by as much as $400 million, depending upon how quickly the economy recovers.

"There is no doubt that we are going to be facing a difficult fiscal year," Council President Nury Martinez said. "But even in difficult years, this council has delivered by focusing on the most vulnerable communities in our city. As we start the new fiscal year, it is important to keep in mind the people who need us the most right now."

Although Los Angeles has been using financial tactics to pay for essential materials to combat the coronavirus pandemic, the lagging economy may not catch up fast enough before the city is forced to further dip into its reserves.

Councilman Paul Krekorian, the council's Budget and Finance Committee chair, said that although tax returns for May have not been calculated, the city's sales tax revenues were down 10% in March and 17% in April compared to last year, and the city's hotel tax revenues were down 11% in March and 77% in April.

"The fear is that this is only going to get worse from here and that we're going to be faced with even more difficult choices," Councilman Bob Blumenfield said.

The budget process for Los Angeles will continue through June, as the city looks for ways to brace for the financial effects of COVID-19.

The Budget and Finance Committee is planning to meet June 8, 15, 22 and 29 to examine the budget, but Krekorian said it's not possible to examine each department's finances at great length this year.

"Even if we had considered all of those lengthy hearings that we typically have, the truth is the level of uncertainty over all of the assumptions that we rely on for our budget is greater now than it has ever been, probably in the city's history," Krekorian said.

Los Angeles' entire budget is proposed to be about $10.5 billion for the next fiscal year, which begins July 1, with an operating general fund of about $6.6 billion.

Los Angeles has already spent $155 million in special fund loans on personal protective equipment and other COVID-19 preventions, but much of those funds could be reimbursed through Federal Emergency Management Agency funds.

Much of the funding for loans is coming from the Department of Building and Safety, and those loans have interest attached to them and must be repaid eventually.

Another $82 million from various funding sources has been used to cover COVID-19 testing kits, senior meals, small business micro loans and other programs.

COVID-19 testing has taken up more than half of those expenses at $43 million, and city officials said they're trying to have the county take over its testing sites, as it may receive federal funding to do so.

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Los Angeles estimates it will receive about $694 million in federal coronavirus relief, but those funds can be used only for responding to the virus and have to be spent by the end of 2020.

The funds cannot be used to replenish revenues the city anticipated it would have received prior to the pandemic.

"We really need to spend those dollars on COVID-specific responses within that time frame," said Matthew Szabo, Mayor Eric Garcetti's deputy chief of staff.

But the city has already had to dip into its reserves, which have fallen from a "robust" 8.5% of the general fund, about $407 million, and will likely be down to 3.6%, or $243 million, by the start of the next fiscal year. City Administrative Officer Richard Llewellyn said the reserves are "dangerously low."

Los Angeles was facing difficult budget decisions prior to the pandemic related to pay raises and contracts with public safety departments, which make up most of the city's operating budget.

The Los Angeles Police Department's budget for this year was about $1.73 billion, and next year it is expected to be increase to $1.85 billion.

Public speakers said Wednesday and Thursday they opposed the proposal to increase the LAPD budget, contending that the money should be used for housing and COVID-19 prevention efforts.

Councilman Mike Bonin asked if there was a way to defer pay raises in response to the pandemic. Neither the LAPD nor Los Angeles Fire Department budgets are in line to see decreases compared to this year.

Llewellyn said he did not want to discuss labor negotiations in a public setting, but "everything is on the table."

Some notable services that are expected to be reduced include capital improvement projects, graffiti abatement, tree services, animal sterilization and the mayor's Gang Reeducation and Youth Development program.

"Our effort here ... was to not cut entirely or eliminate any particular portion of a department or a program, but to try to manage the reductions across the city," Szabo said.

The city has enacted a hiring freeze, estimated to save $42 million next year, and it plans to furlough 15,000 of its civilian employees for 26 days next year to save $139 million.

Councilman David Ryu said as the city considers the budget, it should not make cuts to services that help homeless people, the elderly, victims of domestic violence and other vulnerable populations.

"f we make cuts to departments and services that serve low-income and working families, we will be paying for those cuts for decades to come," Ryu said.

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