Without a promised transfer of money from the Department of Water and Power, the budget gap for the city of Los Angeles has grown to $222.4 million this fiscal year, even with a brighter forecast for property tax collections.

In a key financial status report released Friday morning, City Administrative Officer Ray Ciranna said the city has collected $26 million more than expected in property tax revenues.

But the deficit means the city will have to dip deeply into its reserves to balance its books to end the fiscal year on June 30 in the black. City Council President Eric Garcetti and Councilman Bernard C. Parks, chairman of the budget committee, stressed that the better than expected revenue collections did not mean the city’s budget crisis has been solved.

“The City Council has been consistent that we are going to work hard to close this year’s budget gap and we have,” Garcetti said. “We’ve tried not to propose anything that scares employees, that does things that are irrational or exuberant. But we are trying to maintain calm and a reasonable budget.”

Read the full story, here.

Summary
The Office of the City Administrative Officer (CAO) monitors the budget and transmits periodic reports to the Mayor and Council detailing the City's current financial condition. As instructed in the 2009-10 Budget, this Office is transmitting the Fourth Financial Status Report (FSR) for this fiscal year. This report provides an update on the current-year budget deficit, revenue shortfall and reserve fund status as reported in the Mid-Year (Third) FSR, and it highlights current issues of concern and the potential impact to the City. In addition, it provides an update on department revenues and expenditures, which includes recommendations totaling $168.2 million for appropriations, transfers and other budgetary adjustments-including a recommendation to transfer $80 million from the Reserve Fund to address the current-year deficit. The report also updates the status of the City's spending and savings efforts.

Progress Made to Reduce the 2009-10 Budget Deficit
Since the 2009-10 Mid-Year FSR, substantial improvement in the current-year deficit has been realized through a combination of savings measures and increased revenue. In the Mid-Year FSR, the previously reported budgetary shortfall was revised from $98.1 million to $208.5 million, which increased further as a result of Council actions in conjunction with the approval of the report. The concluding budget deficit was $211.7 million, as reported in correspondence dated February 9,2010 concerning the Short-Term Plan for Fiscal Solvency.

Improved Revenue Collection
The severe recession has reduced expected revenue from the economy-sensitive taxes: sales, business and hotel taxes; the communications users' tax; the gas users' tax and related franchise income; and the documentary transfer tax. Across the board, most of the City's revenue categories have fallen in the current year. However, property tax revenue has held up better than expected. During the budget development process, receipts from property taxes were expected to fall in conjunction with falling collection rates due to the distressed real estate market. Since the collection rate has held better than expected, the City has realized additional receipt~. Redemptions have also trended higher in the current year, adding several million to the estimate. As indicated above, $26 million has been added back to the property tax estimate. Additional revenue analysis is ongoing, and updates will be provided during the budget development process and in the next FSR.

Reduction of DWP Power Revenue Transfer Offsets Post-Mid-Year FSR Deficit Reductions
Unfortunately, with the loss of the planned power revenue transfer from the Department of Water and Power (DWP), the deficit has again increased to $222.4 million. According to DWP, an increase to the Energy Cost Adjustment Factor (ECAF) cap would be necessary in order to declare and transfer surplus funds before the close of the fiscal year. The increase was not approved by Council, and subsequently DWP confirmed that it would not be able to transfer the funds due to cash flow constraints.

2009-10 Budget-Balancing Efforts
In order to reduce the budget deficit, the City has implemented several measures to reduce costs.
Expenditures on sworn and civilian labor costs have been reduced with the implementation of managed hiring policies, mandatory and voluntary furlough programs, the Early Retirement Incentive Program, new agreements with the City's labor partners, and the Modified Deployment Plan within the Fire Department. Equipment and expense costs have been curtailed with efforts to renegotiate contracts, as adopted by Council in the Mid-Year FSR, and to freeze other expenditures, as directed by the Offices of the Mayor and Controller in their joint March 10, 2010 memorandum. These efforts extend to actions to reduce the City's utilization of Municipal Improvement Corporation of Los Angeles (MICLA) debt and corresponding General Fund debt payments, by halting vehicle purchases and postponing construction projects funded by MICLA.

Download the full Report from City Administrative Officer.

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