SAN FRANCISCO — Los Angeles was making progress reducing its budget deficit before a political standoff derailed a planned electricity rate increase,
The nation’s second-biggest city reduced its projected general fund budget deficit for the current fiscal year by 30% to $149 million, according to a financial status report released by the CAO’s office Friday afternoon. The projected deficit is down from $211.7 million as of Feb. 9.
“Substantial improvement has been realized though a combination of savings measures and increased revenues,” the report said.
But a disagreement between Mayor Antonio Villaraigosa and the City Council over electricity rates has tied up a transfer of $73.5 million from the Los Angeles Department of Water and Power to the general fund, more than offsetting the city’s progress on the deficit.
Without the transfer, the deficit would jump to $222.4 million. Elected officials are still battling over the rate increase, and Villaraigosa has asked the utility to transfer as much money as possible to the general fund despite the impasse.
The city reduced its expected budget deficit with the help of $26 million it collected in unexpected property tax revenues, a $16.1 million reduction in department budgets, $6.2 million from eliminating jobs paid for from the general fund, and the remainder from other cost-cutting measures.
The savings from the general fund positions eliminated reflects 380 layoffs and transfers already implemented. The council has approved a total of 4,000 job cuts.
Los Angeles has also been trying to boost its reserve by sweeping available balances into the fund and repaying loans to the reserve. The result is that the city will have $261.7 million in the fund before addressing the deficit. That’s up from the previous estimate of $199 million.
The city plans to use the reserves to cover any remaining deficit at year end. It hopes to replenish the reserve fund next fiscal year with the proceeds of the privatization of city-owned parking garages.
If LADWP makes no transfer to the general fund, Los Angeles would end the year with just $39.3 million of reserves. The financial status report recommended an immediate transfer of $80 million to cover current cash-flow needs.
City Controller Wendy Greuel earlier this month said Los Angeles would run out of cash by May 5 without the LADWP transfer or other action from policymakers.
The new report suggests the city is unlikely to run out of money this year, but it shows that the electric rate impasse could leave the city with reserves of less than 1% of its $4 billion-plus general fund budget next year. The drain on the city’s reserves has already cost the city a downgrade.
Moody’s Investors Service dropped the city’s general obligation rating to Aa3 from Aa2 earlier this month and kept a negative outlook, citing ongoing trouble balancing the budget and the political stalemate.
Standard & Poor’s cut the rating to AA-minus in February and added a negative CreditWatch after Greuel said the city may run out of money. Fitch Ratings dropped the credit to AA-minus with a negative outlook in November.
All three agencies have expressed concern that the city is drawing its reserves down too low because of the failure to balance the budget.
