LOS ANGELES – Los Angeles has regained its financial footing since the worst of the pandemic, but economic conditions remain unstable, L.A. Controller Ron Galperin said Wednesday.
In the just-issued 2022 Preliminary Financial Report, a snapshot of the city’s balance sheet for the fiscal year that ended on June 30, Galperin found that while city revenues were up from the prior year and had mostly rebounded to pre-pandemic levels, a recession could be looming.
“We are still seeing record high levels of inflation and the threat of a possible recession in the near future looms large,” he said in a statement. “To ensure the city can continue providing neighborhood services and equity-focused programming, Los Angeles should keep its reserves strong and exercise financial caution in case an economic downturn comes our way.”
Galperin warned that economic conditions remain unstable as cyclical COVID-19 trends, rising inflation, supply chain disruptions and international conflicts continue to impact global markets. Urging fiscal restraint, Galperin advised maintaining L.A.’s rainy day fund to insulate against future economic downturns.
According to the report, total revenues in budgeted funds were $10.2 billion last year, a 10.4% increase over the prior year and 12.2% more than before the pandemic. This figure does not include federal funds received as part of the American Rescue Plan Act.
Total expenditures were $9.4 billion, 5.4% higher than the year prior as spending increased across nearly every category, the report says.
The city’s Reserve Fund balance in July 2022 was the second highest it has been over the last 10 years at $601.7 million, 8.1% of the General Fund.
Meanwhile, retirement costs increased slightly to $1.5 billion, 15% of overall spending.
In terms of the economic outlook, although the last fiscal year was solid thanks to an uptick in revenue and federal assistance, numerous economic challenges remain and difficult budgeting decisions could arise next year. While it is too soon to say that a recession is certain, high inflation and an unstable global economy put the city’s future financial health at risk.
To proactively address these issues, Galperin urged Los Angeles leaders to exercise caution when considering new spending requests. While most revenue streams have recovered to pre-pandemic levels, now is not the time to overspend, he said.
Before approving new spending requests, the city must first evaluate its ability to maintain neighborhood services and equity-related programming, he said.