Los Angeles, which had projected a $72-million shortfall in the current budget, has sewn up the hole halfway into the fiscal year through a series of cost-cutting measures, city officials said Thursday.
"It's showing that we're moving in the right direction. We could start seeing the light at the end of the tunnel here," City Administrative Officer Miguel Santana said.
But he warned that city officials cannot become complacent and must continue to rethink the budget because the next fiscal crisis is on the horizon. "The worst thing that we could do is assume that we're done."
The city faces an ongoing budget shortfall estimated at $150 million to $200 million in the next fiscal year, Santana said, down from as much as $250 million.
Santana's budget projections came in his midyear report submitted to the mayor and City Council. He said the city must continue austerity measures it put in place, such as reducing the city's vehicle fleet, and urged the mayor and council to take additional steps, warning, "The city may continue to experience unforeseen expenditure pressures."
Every fiscal year since 2007-08, the city has projected at midyear that it would face a multimillion-dollar deficit and has taken steps to eliminate it. Santana expects the pattern to continue and said the city must find new ways to reduce costs and build up its reserves. The city has adopted severe measures to hold down costs, such as halting hiring for most city jobs.
"We're down to the bone and so the next challenge is really figuring out how we're going to do business differently," he said, noting that the city is looking at contracting out some city-run services and programs, such as its animal shelters and the zoo.
Santana said the city will also have to seek concessions from unions on increased contributions to pensions and healthcare, which are adding to the city's ongoing budget turmoil. "That's going to be a hard conversation to have, but we need to do that," he said.
The $72-million deficit stemmed from many factors, including higher gas prices, increased workers' compensation costs and additional overtime at the Fire Department. "It's not one big thing that resulted in the deficit, it's a combination of things," Santana said.
The city's financial situation has been buoyed by revenues that largely matched projections. Income from sales and hotel taxes exceeded the city's budget plan by $16.5 million, although those from some other taxes and fees, including the annual business tax, lagged expectations.
The Occupy L.A. encampment and its eviction added an unexpected $2 million to the city's expenses. Although most departments absorbed the additional costs, the Police Department, which cleared the City Hall grounds in a massive operation, is out $1.3 million.