In late October 2019 the Los Angeles City Administrative Officer, Richard H. Llewellyn, Jr., issued the FIRST FINANCIAL STATUS REPORT for 2019-2020. The city’s fiscal year begins in July so this reported projected $148 million shortfall was made merely 3 months into the budget period. Shockingly, the report states the longterm impact of the new labor agreements will be to turn a projected surplus to a potential shortfall over the next 4 years that could be as high as $400 million per year!
“This Office has identified $148.93 million in projected overspending in the current year mainly due to additional salary obligations pursuant to various new labor agreements.”
Llewellyn “recommends a plan to prepare for the future to position departments to gradually, and in a controlled manner, curtail spending with minimum impact to service levels. This is the first step towards making structural changes to address these fiscal challenges in future budgets.” He continued, “In addition to current year overspending, this report highlights additional pressures on the City budget that will need to be managed in the years ahead.”
The year-end expenditure imbalance is detailed in the report and is mostly attributed to increased labor costs in the following categories:
– Projected overspending of $47.98 million in the Police Department primarily due to new sworn and civilian labor agreements.
– Unfunded costs of up to $43.00 million from the special items in new labor agreements not currently included in department expenditure projections.
– Projected overspending of $26.05 million in the Fire Department due to unbudgeted salary adjustments from new sworn labor agreements ($18.85 million) and overspending in the Overtime General, Overtime Sworn, Overtime Constant Staffing, Contractual Services, and Field Equipment Expense accounts ($7.20 million)
– Projected overspending of $15.60 million in the Human Resources Benefits Fund due to increased workers’ compensation costs ($10 million) and increased employer contributions for health care as included in the new labor agreements ($5.6 million).
“Other pending labor agreements, pension system assumption changes, or major construction projects could exacerbate the projected deficits.”
The report states, “Subsequent to the release of the Adopted Budget, the City reached agreements with various civilian and sworn labor units. Including the impacts of these agreements on the 2019-20 Adopted Budget Outlook turns the projected surpluses in each of the four years to deficits ranging from $200 million to $400 million per year. Other pending labor agreements, pension system assumption changes, or major construction projects could exacerbate the projected deficits.”
The entire 87 page report can be found here: http://cao.lacity.org/budget/20191024FSR1.pdf