A City Council committee Wednesday is set to hear a report about L.A.'s mid-fiscal-year financial status, as well as potential plans to address a projected $288.6 million deficit.
The council's Budget, Finance and Innovation Committee will convene to discuss recommendations to balance the budget -- with city documents revealing the deficit has the potential to increase due new labor agreements, among other factors.
City Administrative Officer Matthew Szabo will lead the discussion and highlight information from the Third (Mid-Year) Financial Status Report.
In one strategy to balance the budget and possibly prevent impacts in the next fiscal year, the city implemented a Prioritized Critical Hiring Process -- a plan to potentially eliminate thousands of "non-critical" city positions that are currently vacant.
Officials say this could save the city between $150 million and $200 million. There is a chance this plan could include priority positions for non- sworn public safety positions to be cut.
The Financial Status Report states these fiscal challenges will require the use of Reserve Fund money to rebalance the fiscal 2023-24 budget -- likely to cause the fund to drop below the 5%.
The Reserve Fund is the account used to defend the city against unbudgeted or unforeseen events that may negatively impact the city's fiscal solvency.
The city's reserve balance stands at $482 million, or 6.2% of the 2023- 24 General Fund revenue, according to the financial report. The city has a policy to keep the reserve fund at or above a 5% minimum.
There are also concerns the financial challenges could hamper the city's service delivery over the next several years, as has previously occurred during times of below-average revenue growth.
The report shows revenues through January standing at $187 million below plan, and the revenue outlook going into 2024-25 seeming "dim" as a result of inflation.
Moving into next year's budget, the city will need to rely on expenditure reductions to mitigate cost increases, the report says.
Szabo, in the report, notes city leaders may have to consider "deep cuts" in departmental expenses used for contractual services, overtime and as- needed salaries; reduce critical capital and infrastructure spending; fee increases for full-cost recovery of city services; and re-examining prior and ongoing funding commitments.
Driving over-expenditures are the Police Department ($105.3 million), liability claims ($91.6 million) and the Fire Department ($51.5 million), accounting for 86% of overspending, the report noted.
Last year, the city approved a new four-year, multi-million labor contract with the Los Angeles Police Protective League, the union representing the rank-and-file of LAPD officers. Szabo has confirmed it could cost the city $1 billion over the contract's lifetime.
The report also outlines concerns with liability claims, as approved and pending payouts are nearing $200 million for this fiscal year alone -- almost double the budgeted amount.
On Tuesday, Councilman Bob Blumenfield, who chairs the budget committee, warned his colleagues of the budget deficit, and how it may impact the city's approach to homelessness.
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The city may have to chart a new path forward, the councilman noted, as there is a "real possibility" that the city may drop below 5% in its reserve fund.
He added that the city may have to cut down on the number of motels it was set on acquiring, and begin a path to offload General Fund expenses for federal and state grants.
Blumenfield also emphasized the need to offset services related to homelessness by getting the county of L.A. to step up and cover them. In addition, he encouraged audits to help the city "gain greater clarity" into the gaps in the system.
The councilman said the city will need to look at developing a strategic plan on homelessness and a three-year housing plan to meet future deadlines and other obligations.
"Spending money like it's an emergency is not indefinitely sustainable," Blumenfield said during Tuesday's City Council meeting.
"This council as a body will need to continue setting policies, especially as we look to transition the various pilot programs we have."
In efforts to prepare the city and address key issues ahead of the 2028 Olympic and Paralympic Games, and the 2026 FIFA World Cup, Mayor Karen Bass and council members have traveled to the state and federal capitals to lobby for more funding.
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