Los Angeles may be able to close a $688.7 million budget gap for fiscal 2021-22 without tapping reserves or engaging in deficit borrowing thanks to the recently enacted federal stimulus bill.
“After a really, really tough year, things are actually looking up,” City Administrative Officer Richard H. Llewellyn Jr. told City Council members during Monday’s Budget and Finance Committee hearing. “With a wider vaccination program, and passage of the American Rescue Plan, we can begin to hope the worst of the pandemic’s effects are behind us.”
The city expects to receive $1.4 billion from the Biden administration's relief bill in two equal payments, one at the end of this fiscal year, and the second a year later, Llewellyn said.
Prior to the adoption of the $1.9 trillion package, Llewellyn said the city expected it would need to deplete its $274.1 million in reserves and issue $150 million in commercial paper to cover a $688.7 million budget gap, partly resulting from a $600 million revenue shortfall.
The bill President Biden signed on March 11 designates $350 million for state, local and tribal governments to mitigate the fiscal impact of the COVID-19 pandemic. Governments have until the end of 2024 to spend all of the funds.
“Rather than having to continue down the path of extraordinary fiscal decisions this office had recommended in our prior financial status reports, the funding within the American Rescue Plan earmarked for the city allows us to reshape our financial future,” Llewellyn said. “Instead of borrowing and creating generational inequity, or making additional cuts to already strained departments to balance our budget, the ARP funds will help stabilize the city’s finances while the city’s economy recovers.”
The CAO
“There is one significant caveat to these recommendations,” Llewellyn said. “The amount of ARP funds available for lost revenue replacement will be contingent on guidance from the Biden administration. If the ARP funds are restricted in certain ways, it may be necessary to continue with some or all of our existing budget balancing plan.”
During a
Los Angeles Mayor Eric Garcetti will release his fiscal 2021-22 budget April 20, and City Council members have until June to approve it.
Yellen's testimony did provide some general information about how the money can be used.
“These funds may be used to cover costs incurred to respond to COVID-19 or its negative economic impacts, including assistance to households, small businesses, non-profits, and impacted industries (e.g., tourism, travel, and hospitality); provide premium pay to essential public employees or grants to employers of essential workers; provide government services to the extent of revenue loss due to COVID-19; or make necessary investments in water, sewer, or broadband infrastructure,” Yellen said in her
Los Angeles experienced an $800 million loss of revenues between the last and current fiscal year, said City Councilmember Paul Krekorian, D-North Hollywood, who chairs the Budget and Finance committee.
“I think some people can’t appreciate the magnitude of the numbers — $800 million in revenue shortfalls — is unprecedented in the history of the city,” Krekorian said. “Glad we have this to help, but it is only going to stop the bleeding.”
Without the federal rescue money, the City Council had planned to carve the budget gap down to $77.5 million through $157.5 million in budget reductions, using $68.9 million in COVID-19 reimbursements, depleting its $274.1 million in the Contingency Reserve Account and the Budget Stabilization Fund, issuing $150 million in commercial paper through the Municipal Improvement Corporation of Los Angeles, and getting $22.7 million in labor concessions. Those actions would leave only $183.9 million in the Emergency Reserve Account in reserves.
The city was also looking at paying some of its vendors late in order to cover the remaining $77.5 million shortfall.
If the city uses the federal money to cover the budget hole, and replenish the $196 million in reserves it used last year, as Llewellyn recommends, it would leave $54 million for programming during the budget process.
“We have heard from many people asking if we should start spending again,” Llewellyn said. “We don’t recommend that.”
Among the questions remaining is whether to take the $150 million that MICLA had expected to borrow to close the budget gap and return that debt capacity to capital investments that had been cut from the plan.
City Councilman Bob Blumenfield, D-Woodland Hills, recommended that council members consider lifting the hiring moratorium for critical positions that are now vacant.
“The hiring moratorium has been difficult for the city, but it has helped us save money,” Llewellyn said. “With ARP, we think we need to open the spigot a bit. We are recommending going back to managed hiring.”
City Councilmember Kevin de León, D-Boyle Heights, said he was glad to see the CAO’s office had recommended restoring the $150 million for MICLA and filling critical positions, but he also thinks the city needs to prioritize helping homeless people.
“We have court-mandated deliverables,” de León said. “I think we have to look at using some ARP funding to deal with our homelessness crisis. I know why we need to maintain reserves minimum reserves, because it’s something the rating agencies consider. But I am wondering if we are being too bullish in socking away reserves with the magnitude of the humanitarian crisis before us.”
The amount that Llewellyn recommended would bump the city up to having 11% in reserves.
“I have major concerns about putting all that funding back into reserve funds. Could we split the money and put part of it in reserves and part of into a fund for housing? The charter only requires we maintain reserves equal to 5% of the general fund,” de León said.
De León added he was concerned it would be harder to tap reserves if the city needed the money to pay for the pipeline of affordable housing it has planned.
“I am a bean counter, I am the chief homelessness officer, and I am a bleeding heart,” Llewellyn said. “We do have a lawsuit — and the humanitarian crisis is real, and we are going to have to spend to get out of it, but we are also going to have to spend just to keep the lights on.”
The CAO recommended again that this year’s federal relief money will just be enough to balance the budget, and that it would be better to consider the $675 million the city will receive next year for other priorities.
“ARP is also providing separate pots for homelessness and housing, and I think we should apply for that funding, before we go to the unrestricted pots” Llewellyn said. “And your colleagues in Sacramento are sitting on a lot of money for homelessness.”
The committee ultimately decided to approve the CAO’s recommendations.
