The city of Los Angeles’s fiscal outlook has worsened, and leaders will need to cut services “aggressively,” including potentially moving forward with layoffs, in order to find as much as $600 million to close the revenue gap in this year’s budget, the municipality’s top budget adviser said in a report released Friday, Oct. 23.
City officials had previously been projecting that amid the novel coronavirus pandemic, revenues could come up short by between $200 million and $400 million.
But in a new financial status report, City Administrative Officer Richard Llewellyn said the difference could widen by another $200 million. He now estimates that the shortfall will be at least $400 million, but could balloon to $600 million.
“The magnitude of this revised year-end revenue gap cannot be understated,” Llewellyn wrote in the report, which was addressed to Mayor Eric Garcetti, Council President Nury Martinez and the Budget and Finance Chair, Councilman Paul Krekorian.
The previous, smaller shortfall had been projected to “exhaust” most of the city’s reserves — put aside for rainy days, emergencies and budgeting challenges — but the new estimate for the gap means spending could go beyond “any available reserves and any currently identifiable solutions,” he wrote.
“Absent increased or new sources of funds, therefore, the city will only be able to address this revenue challenge by aggressively reducing costs and services in the coming months, using all available fiscal restraint tools,” Llewellyn said.
Some of the “fiscal restraint” steps that advisers now recommend might include layoffs, which Garcetti had instructed city department heads to prepare for in a letter issued in September.
That letter directed the general managers of the city’s more than 30 departments to begin a “layoff evaluation” process and to identify positions that could be eliminated, among other potential cost-cutting measures.
Llewellyn said in Friday’s report that “all departments must actively participate in this process by not only managing within their existing funds, but also actively complying with the mayor and council’s fiscal constraint directions and identifying solutions to curtail current year expenditures.”
The City Administrative Officer will be working with department heads to come up with “an initial set of recommendations for budget reductions” that will be released as part of the next financial status report, he wrote.
The City Administrative Officer’s latest financial status report is expected to be taken up by the City Council’s Budget and Finance Committee on Monday, Oct. 26.
A Garcetti spokesman, Alex Comisar, said the federal government needs to step in to help the city weather these fiscal challenges.
“Without federal assistance, it’s clear that the budget impact of the COVID-19 pandemic will cause catastrophic service cuts,” he said in a written statement.
“The mayor is addressing this shortfall with a variety of cost-saving measures, and has directed departments to prepare for layoffs,” Comisar 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.”
Controller Ron Galperin said that the CAO’s new estimate is “in line with the projections my office made in April.”
He also pointed to the recommendations he made this week, as part of his preliminary financial report, to “closely monitoring spending and revenue sources, getting creative to leverage vacant city properties and special funds, and also using some of L.A.’s available debt capacity to invest in infrastructure improvement projects that would create jobs for Angelenos in need and stimulate the local economy.”
City leaders recently agreed to defer to January furloughs for civilian workers that had been scheduled to begin earlier this fiscal year, reducing the amount of savings city leaders had been expecting from the measure for closing the budget gap. Garcetti had announced plans to do furloughs in his state of the city address in April. The city has also offered buyout plans to encourage employees to retire, as another way to save on costs.