Report 96018 Summary - March 1996
Los Angeles County:
Balanced Budgets Will Be a Continuing Challenge
Los Angeles County produced balanced budgets in each of the last five fiscal years, after initially announcing shortfalls ranging from $277 million to $1.2 billion;
To balance its fiscal year 1995-96 budget by year end, the county needs federal approval of a $346 million health relief package, and departments must meet a 20 percent reduction in net county cost; and
Some of the causes for the fiscal crisis are:
- Property tax shift to schools
- Reliance on shortterm solutions
- Provisions in past collective bargaining agreements and employee contracts.
Results in Brief
Los Angeles County (county) is one of California's original 27 counties and is responsible for providing public welfare, health, and public safety services to its citizens. Under the provisions of the California Government Code, Section 29088, the county must approve a balanced budget by August 30 of every fiscal year. In preparing its budgets for each fiscal year between 1991-92 and 1995-96, the county announced that it had budget shortfalls ranging from $277 million in fiscal year 1991-92 to $1.2 billion in fiscal year 1995-96. However, by the time it adopted a budget for each year, the county had produced a balanced budget through the use of layoffs, program curtailment, one-time financing to raise revenue, increased taxes and fees, and use of fund balance. Our review focused on the county's fiscal condition as well as the conditions and actions that have contributed to the budget shortfalls. Specifically, we noted the following:
- In January 1996, the county announced that its shortfall for fiscal year 1996-97 is $517 million. In addition, the likelihood of the county's achieving a balanced budget in fiscal year 1995-96 is subject to its successfully obtaining approval by the federal government of a $346 million healthrelief package and having many of its departments meet their targeted 20 percent net county cost reduction, producing a savings of $155 million.
- Several factors, including property tax shifts to schools, have caused the county's fiscal crisis. For example, between fiscal years 1992-93 and 1995-96, the county will have transferred a total of $3 billion to school districts and community college districts.
- Until fiscal year 1995-96, the county relied heavily on shortterm solutions to resolve its budget shortfalls. For example, in fiscal year 199293, the county raised cash to cover its operating expenditures by encumbering a major county asset, Marina del Rey, and selling $160 million in bonds. The county will pay principal and interest on these bonds until the year 2008.
- The county has been limited in the actions it can take to address budget shortfalls due to provisions in past collective bargaining agreements and employee contracts that have stipulated increases in employees' salaries and benefits. Also, the county has limited discretion over the spending of 90 percent of its General Fund revenue because these funds are specifically designated for operation of state and federal programs.
- Future balanced budgets will be difficult to achieve because the county will need additional funding to implement the Three Strikes law, repair county-owned buildings damaged in the Northridge earthquake, and implement state and federal welfare reform. In addition, the legality of certain increases in the county's taxes may be challenged.
To ensure achieving a balanced budget for the current and future fiscal years, the county should:
- Continue its efforts to finalize Phase I of the 1115 Waiver. In addition, the county should pursue the necessary changes to state and federal legislation so it can implement its planned changes to its health care system in Phase II of the 1115 Waiver.
- Closely monitor all affected county departments to ensure that they reach their targeted 20 percent reduction in net county costs.
- Continue its emphasis on far-reaching strategies for solving budget shortfalls begun in fiscal year 1995-96.
- Continue the policy of negotiating no salary increases in collective bargaining agreements until its economic situation improves.
- Continue the hiring-freeze policy but grant exceptions where limited staff as well as public health and safety requirements create a strain on departments' abilities to fulfill their missions without current employees working unreasonable overtime hours.
- Ensure that all departments establish and maintain controls over the authorization and use of overtime.
The county generally agrees with our recommendations and is proceeding with efforts to implement them. In addition, the county concurs with the objective of achieving greater consistency in the authorizing of overtime among departments and will be working to ensure existing procedures and controls are more uniformly followed.
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