Closure of Los Angeles shortfall viewed as well within city's grasp

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Los Angeles should be able to close a $35 million general fund shortfall this year if the past several years are any indication, said Fitch Ratings.

“Despite numerous past projected deficits that have varied widely in size, the city added to its unrestricted general fund balance every year between fiscal years 2011 and 2016,” Fitch analysts wrote in a report Friday. “This was achieved in the face of increasing expenditures.”

The city did make a $142 million unrestricted general fund balance drawdown in fiscal 2017 as a result of ongoing expenditure pressures, Fitch said. The general fund transfers were used to support debt service obligations, capital costs, non-general fund department operations and cover a decrease in the reserve for inventories, analysts said.

The city still ended fiscal 2017 with a strong general fund balance of $886 million representing 16% of spending, down from $1.03 billion, presenting 20% of spending, the prior year.

The shortfall, which represents less than 1% of the $5.83 billion in fiscal 2018 budgeted revenues, was reported March 2 by City Administrative Officer Richard Llewellyn in the city’s mid-year financial status report for fiscal 2018.

Revenues increased by 2%, but general fund expenditures have increased by 6% primarily as a result of increased employee salaries and contractual service costs, Llewellyn said in his report.

The city currently has cumulative reserves just under 8% of the general fund budget down from the 2018 peak of 10%, Fitch analysts wrote.

“The reserves are strong, but must be preserved to mitigate any future economic shocks and ongoing fiscal challenges,” Llewellyn wrote.

Local and federal funding uncertainties, a HUD settlement payment, and potential unbudgeted expenditures for liability claims were listed as budgetary concerns, Fitch analysts wrote.

The city’s multi-year forecast, which anticipates closing the structural deficit by 2022, is due to be updated in April.

Los Angeles Mayor Eric Garcetti has until April 20 to introduce a fiscal 2019 budget.

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Budgets City of Los Angeles, CA California