Four months into the fiscal year, the city of Los Angeles has already overspent its budget by nearly $300 million, according to a report released this week by the City Administrative Officer.
The city is in “a particularly challenging financial position,” the report states, noting increased legal liability and labor costs across a number of departments.
L.A.’s reserve fund has dropped to 4% of revenues, according to the report. The city has a policy of keeping the fund at a minimum of 5%. If it drops below 2.75%, the council would need a two-thirds vote to withdraw money from it. That could threaten the city’s bond rating, which would increase the city’s borrowing costs.
“The warning alarms are appropriately going off,” said Bob Blumenfield, chair of the City Council Budget Committee. He said cuts in city services would likely be needed to address the problem in the $12.8 billion budget.
“We’re talking about slowing down the hiring, which has real impacts on services,” he said. “We’re talking about asking departments to absorb some of these deficits within their departments, which also has an impact on services.”
Where did the money go?
More than a third of the overspending is related to increased legal payouts to people who’ve sued the city. The city has overspent its liability claims account by $112 million — more than twice what was budgeted for the entire year.
“It’s pretty stunning to see how quickly we’ve blown through that money,” said Rob Quan of Unrig LA, a watchdog group.
Legal liabilities include court judgments and legal settlements involving police abuse or negligence, which accounts for 40% of…
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