Budget OverviewP R E S E N T E D   BY  M I G U E L   A .   S A N TA N A

C I T Y   A DM I N I S T R AT I V E   O F F I C E R

City of Los Angeles COMMUNITY BUDGET DAY

November 17, 2012

Topics

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2012-13 Budget General Fund and Special Funds

Revenues Appropriations

Reserve Fund Issues and Challenges Economy Federal and State Pensions

Development of the 2013-14 Budget Outlook Five Guiding Principals Solutions

FISCAL YEAR 2012-13BUDGET COMPONENT

AMOUNT($ Millions)

AuthorizedPositions

City Budget $7,246 31,817General Fund $4,550 21,724

Special Funds $2,695 10,093

Proprietary Department Budgets

$12,003 14,514

Airports $4,341 3,534

Harbor $954 994

Water and Power $6,708 9,986

Grants & Other Non-Budgeted $1,337Total City Government $20,586 46,331

Fiscal Year 2012‐13 Budget at a Glanceo The City’s General Fund

supports most of the municipal services in the City such as Fire and Police services.

o Special funds are generated for a specific purpose, typically approved by voters for a specific service like sewer construction.

o Proprietary Departments are governed by separate boards but still fall within the jurisdictional review of the Mayor and City Council.

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Fiscal Year 2012‐13 Adopted Budget

o General Fund revenue fluctuates depending on economic conditions. Diversity of revenues helps stabilize volatility.

o Most budget decisions pertain to the General Fund.

o Special funds provide stability for the City and its services by ensuring a dedicated source of funding for key services, but offer minimal flexibility.

o No single source of income comprises more than one third of the City’s revenue base.

o 69% of General Fund revenue comes from six economically sensitive categories:o Property Tax

o Utility Users’ Tax

o Business Tax

o Sales Tax

o Transient Occupancy Tax

o Documentary Transfer Tax

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Fiscal Year 2012‐13 General Fund Revenue Sources

o Public Safety continues to be a priority for the City, with the Police and Fire Departments accounting for more than a third (38%) of total General Fund Appropriations.

o The next largest appropriation is to Pensions and Retirement (19%) which almost equals the collective amount budgeted for all other City departments (20%).

Fiscal Year 2012‐13 General Fund Appropriations

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o While the Police and Fire Departments accounted for only 38% of total General Fund Appropriations, combined they account for 72% of unrestricted revenue expenditures. These expenditures include their allocation of pensions and health care costs.

o Restricted Revenues include sewer revenues, gas tax, grants, and fees for special services.

Fiscal Year 2012‐13 Distribution of Unrestricted Revenues

Police55% Fire

17%Public WorksStreet ServicesTransportationEngineeringCapital 

ImprovementsBuilding & Safety

Planning7%

Library4%Parks and 

Recreation6%

Other11%

2012‐13 Budget Unrestricted Revenues 

$3,780 million

Public Safety, 72%

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Fiscal Year 2012‐13 Adopted Budget – Reserve Fund

o The July 1, 2012, Reserve Fund balance was $227 million (4.99% of the General Fund).

o The Actual Reserve Fund Balance was $8.97 million more than the Adopted Budget.

The financial backdrop for this year’s budget and for next year’s budget continues to be dominated by: global fiscal uncertainty; slow recovery in the US; and high unemployment 

Slow Recovery/Recessionary Environment

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71

143

214

286

357

429

500

0

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4

6

8

10

12

14

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

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Fiscal Year Ending

Local 1% Sales Tax and Local Unemployment Rate

Unemployment Rate -- Seasonally Adj. Sales Tax

Federal and State Actions

Federal The looming “fiscal cliff” threatens recovery with the expiration of the

$440 billion in tax cuts and the implementation of mandatory $100 billion across-the-board spending cuts, should a budget compromise not be achieved. The Congressional Budget Office projects that the economy would contract at an annual rate of 0.5 percent in the first half of the year resulting in a recession.

State The approval of Proposition 30 will generate $8.5 billion for the state

to avoid reductions to education. It will not generate any additional revenue or State funding for the City.

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Data shown is as of July 2012 and does not include recent changes pension plans based on new employee agreements or revised actuarial assumptions.

Pensions and Benefits – Estimated Contributions 

$999

$1,121

$1,213$1,285

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Pension Reform

The Civilian Tier II will reduce the City’s future pension costs by: Increasing the normal retirement from 55 to 65 Lowering the maximum retirement factor from 2.16% to 2% per year of service

Capping the maximum retirement allowance at 75% of an employees’ final compensation

Limiting healthcare to retirees only

The Sworn Tier VI will reduce the City’s future pension costs by: Requiring employees to contribute 2% towards retiree healthcare Lowering the minimum Pension Percentage from 50% to 40% for 20 years of service

Calculating final compensation based on two year average instead of a one year average

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Projected Deficits from 2013‐14 to 2016‐17

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Actions Taken by the City

The FY 2013‐14 deficit has been reduced from a projected $1 billion to $216 million by implementing the following structural solutions:

Eliminating of over 5,000 positions  Increasing employee contributions to retirement plans and health insurance

Imposing a 20% salary reduction for new sworn police Eliminating non‐essential functions and consolidated departments  Refinancing debt to lower interest rate Reducing service contract costs Improving citywide billing and collections

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Five Guiding Principles 

• Prioritize services and fund accordingly, including support costs

• Reestablish a base service level for priorities consistent with available funding

• Realign services across departments based on core-competencies

• Maintain a strong Reserve Fund

• Make smart investments

Responsible Fiscal 

ManagementFocus on 

Core Services

• Implement alternative service delivery models

• Establish a managed competition process for select services

Alternative Service Delivery Models 

• Reduce the ongoing cost of the City’s workforce with minimal service impact

• Reduce the ongoing cost of the City’s workforce through strategic size reductions

Sustainable Workforce

• Maximize the General Fund

• Enhance existing or establish new revenues sources

Revenue

I II. III. IV. V.

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Potential Solutions to Offset the $216 Million Deficit

Potential Revenue to Eliminate the $216 Million Deficit

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• Sales Tax is 7% of General Fund receipts

• The City receives $.0075 for ever taxable dollar spent in the City

• FY 2011-12 sales tax revenue was $323 million

• FY 2012-13 is projected to be $332 million

An half cent sales tax increase would generate an additional $215 million in General Fund Revenue

State Rate 6.25%

Statewide Bradley-Burns Rate (1%)County Transportation 0.25%Local Point of Sales 0.75%

Local Sales (Transaction) Taxes (capped at 2%)Proposition A 0.50%Proposition C 0.50%Measure R (exempt from 2% cap) 0.50%

Total Tax Rate in the City 8.75%*

*The approval of Proposition 30 will increase the City’s tax rate to 9.00% 1/1/2013 through 12/31/2016

Next Steps in the Budget Development Process

2012 September 28    Mayor released his Budget Policy Letter to departments October 9           CAO released budget instructions based on the Mayor’s 

policy direction November 15    Department budgets are due to Mayor and CAO November 17    Community Budget Day

2013 Jan./Feb. Budget meetings with Mayor’s Office and departments March 1 Controller’s revenue projections March Final budget decisions April 20 Mayor’s Budget due to City Council April/May Budget and Finance Committee reviews budget May City Council considers budget June 1 Charter deadline for Council to consider budget

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