Los Angeles revenue shortfalls lead to city employee furloughs

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Los Angeles Mayor Eric Garcetti announced plans to furlough thousands of workers in Sunday night's State of the City speech.

The mayor said the plans are part of a larger effort to ensure the city survives the economic fallout from the coronavirus epidemic.

The mayor’s speech, typically given a few days before his annual budget address, comes after Los Angeles Controller Ron Galperin released estimates showing a $231 million drop in revenue this fiscal year from earlier expectations — and as much as a $598 million decline from his previous estimate for next fiscal year.

Los Angeles Mayor Eric Garcetti
"Our city revenues have plummeted," Los Angeles Mayor Eric Garcetti said. "Hotel reservations have collapsed."

The typically optimistic Garcetti was teary-eyed as he announced the furloughs.

“Our city is under attack,” Garcetti said, “but we are not broken, nor will we ever be.”

The furloughs involve 26 unpaid days off for the city’s civilian workforce, representing a 10% reduction in pay. The $598 million miss for the next fiscal year could differ, depending on how long businesses are shuttered amid the pandemic, according to the controller’s report.

“The city is facing an unprecedented crisis due to the coronavirus pandemic, and our revenue outlook is much darker than it was even a month ago,” Galperin said. “Our city is in a better position than most municipalities because of the diversity of our revenue streams and healthy reserve fund balance.”

Reductions in revenues, like those the city is seeing, will undoubtedly strain the city’s ability to provide high-quality services and require some very difficult budgeting decisions this year, and in the future, Galperin said.

More than 600 people have already died of COVID-19 in Los Angeles County, and deaths increased significantly during the past week, according to the Los Angeles Times coronavirus tracker.

The mayor’s Sunday speech before a mainly empty City Council Hall differs greatly from previous years where he presented to a packed chamber.

"Our city revenues have plummeted," Garcetti said. "Hotel reservations have collapsed."

After 9/11, the mayor said, "our airport closed for two and a half days, passenger traffic fell by as much as a third that month, and it took 10 years to claw our way back. Today, airport passenger traffic is down 95%."

From a fiscal perspective, "this is the worst it's ever been," said Garcetti, who was elected to a second term as mayor, after serving eight years as a city councilman.

The city had its outlook revised Friday to stable from positive by Moody’s Investors Service affecting $835 million in general obligation bonds, $1.5 billion in lease-backed obligations and $6.2 million in judgment obligation bonds.

Moody’s affirmed its Aa2 GO bond rating, the Aa3 on its lease revenue bonds and the A1 rating on lease revenue refunding bonds and judgment obligation bonds, Series 2010A.

“The revision of the outlook to stable from positive reflects our changed view of the city's likely revenue and reserve trajectory,” Moody’s analysts said.

The rating agency’s prior expectation “was for continued revenue growth and increasing reserves over our 18-24 month outlook horizon. Such near-term improvement is no longer probable in the current economic environment, even if the coronavirus downturn proves short and the recovery relatively rapid,” analysts wrote.

Moody’s said it expects the city will manage this downturn as it has prior economic downturns, making the necessary adjustments to maintain its healthy, long-term credit profile.

Analysts cited the city’s exceptionally large tax base and growth in commercial and residential development as support for the Aa2 GO rating.

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State and local finance Coronavirus City of Los Angeles, CA California Bond ratings
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