LA's Expenses Rise Amid 'Economic Uncertainty' Due To Coronavirus

LOS ANGELES, CA — Los Angeles Controller Ron Galperin released the city's annual revenue forecast Monday in which he highlighted projected revenue growth but also said government spending is increasing and "economic uncertainty" could affect the city's financial picture.

"Our local economy is healthy today, but expenses are rising and recent global economic concerns could impact city revenues this year," Galperin said.

"The fallout from the coronavirus has already resulted in fewer shipments to the Port of Los Angeles, and if it continues, the effects could ripple throughout the city," he said. "While it is unclear what will come to pass, the best way to protect the city in the face of uncertainty is to budget with restraint and make every effort to expand sources of revenue that aren't as susceptible to the ups and downs of the market."

The annual Revenue Forecast Report provides updated estimates of the current year's general fund and special fund revenues, and estimates how much money the city will bring in over the next fiscal year.

The forecast is intended to help inform the mayor and City Council as they discuss the city's fiscal year 2021 budget this spring, Galperin said.

The controller provided a set of good and not-so-good highlights from the forecast.

The good:

-- General fund revenue is up 6% to $6.61 billion for fiscal year 2020, 0.7% higher than the amount budgeted. Next year, the general fund is set to increase another 3.2%.

-- Cannabis-related taxes will generate $128 million for the city this year -- $84 million in business taxes, $30 million in sales tax and $14 million in permit fees. The overall number will grow if the city intensifies its efforts to permit new cannabis businesses and enforce against illegal ones.

-- The Street Damage Restoration Fee will receive bring in $54 million this year, up from less than $10 million per year historically.

The not-so-good:

-- Expenses will eclipse revenue growth this year due to the increased cost of employee salaries and benefits. Galperin said short-term fixes can help the city's bottom line now, but any unanticipated economic stress could put Los Angeles in a "far more precarious" financial situation.

-- The Port of L.A. is projecting a 25% drop in cargo volume in March and 12% to 15% over the first quarter of the year due to the concerns about the global coronavirus outbreak. The stock market just had its worst week since the 2008 financial crisis and air travel to the United States could also be reduced, affecting the city's collection of sales tax, hotel tax and the local economy as a whole.

-- Changing consumer habits are causing some revenue sources to drop significantly, including the telephone users tax, which will continue its downward slide from $267 million in 2010 to $132.7 million this year, a 50% drop over 10 years.

-- Enforcement of the city's home-sharing ordinance has resulted in a 49% decrease in listings across all hosting platforms, making it necessary for the city to closely monitor transient occupancy tax receipts for any future negative impacts.

The full report can be found at lacontroller.org/revenueforecast2021.

—City News Service