Mayor Eric Garcetti and the City Council have declared a State of Emergency to address the homeless crisis that is plaguing Los Angeles.  This will require our cash strapped City to devote $100 million a year from the General Fund to finance new housing and services for its 26,000 homeless residents.

But Garcetti and the City Hall gang have not presented any definitive operational or strategic plans.  They have also not identified how they intend to pay for this ambitious undertaking that will crowd out other vital programs such as the repair of our streets, residential sidewalks, and parks or the restoration of services that were eliminated during the City’s financial meltdown.

While Garcetti and the Herb Wesson led City Council are giddy over the fact that revenues have increased by $275 million over the past year, the City does not have the liquidity to fund a $100 million program unless it resorts to the fiscally irresponsible stunt of raiding the City’s rainy day fund, otherwise known as the Reserve Fund.

According to the City Administrative Officer’s First Quarter Financial Status Report, this year’s City budget is already $62 million in the red after only three months because of cost overruns at the Fire and Police Departments, excessive liability claims, and a modest down payment on the homeless initiatives.  Furthermore, the City is projecting a $90 million deficit next year because of the $150 million increase in salaries, pension contributions, and benefits.

These combined deficits of over $150 million will put added pressure on the Reserve Fund.

These deficits, however, do not reflect the impact of the recently approved labor agreement with the City’s 20,000 civilian employees which will eventually cost over $125 million a year.  This will perpetuate the Structural Deficit, wiping out the 2019 projected surplus of $36 million and turning it into a $90 million loss.

Put another way, the four year deficit (2017 to 2020) will increase from $37 million to a river of red ink of over $400 million.

There are also a number of other contingencies that could have a negative impact on the budget, including the costs associated with El Nino, adverse judgements involving City personnel and their benefits, and net shortfalls in anticipated revenues.

Garcetti and the Herb Wesson led City Council are eyeing the $393 million Reserve Fund as the funding source for the $100 million homeless initiative now that they have conveniently declared a State of Emergency.  But the Reserve Fund is not intended to finance ongoing programs or anticipated budget deficits.  Rather, it is designed to be used in the case of real emergencies such as an earthquake or unanticipated budget shortfalls.

The concept of a rainy day fund is to grow it during good times so that money will be available in bad times. This common sense approach has been ignored by Garcetti, Wesson, Budget and Finance Chair Paul Krekorian, and the rest of the City Council as the City has raided the Reserve Fund for $150 million this year despite revenues increasing by over 5%, or almost $275 million.

Rather than raiding the Reserve Fund to finance budget deficits or the homeless initiative, the City should increase the reserves to $450 million.  This amount, along with the $90 million Budget Stabilization Fund, would bring total reserves to $540 million, an amount equal to a healthy and recommended 10% of General Fund revenues of $5.4 billion.

Any program to help the homeless, including one working with the more experienced County, needs to be carefully planned and executed.  There must also be a sound financial plan that is an integral part of the annual budget and not dependent on one time revenues or the Reserve Fund.  Otherwise, our cash strapped City will be wasting valuable resources which, despite the hefty increase in revenues, it can ill afford.

Cross-posted at CityWatchLA.