Report 98018 Summary - April 1998
Los Angeles County:
The Future Holds Continuing Budget Challenges
Results in Brief
Los Angeles County (county), one of the original 27 counties in the State, is responsible for providing public welfare, health, and public safety services to about 9.6 million residents. In our four previous audits on the county's budget, we reported that the county has produced balanced budgets for each fiscal year from 1991-92 through 1997-98 after initially projecting budget shortfalls. We also reported on the steps the county took to balance its budgets, such as the use of layoffs, program curtailments, a hiring and wage freeze, additional federal financial assistance, and one-time revenue sources.
In this final report, we consider the county's fiscal outlook through 2000-01. Despite anticipated growth in general purpose revenues, we estimate that the county may face a budget shortfall in excess of $308 million by 2000-01. As in the past, the county will have to continue monitoring its budget closely and identify new sources of revenues or implement cost-cutting measures to manage this estimated shortfall. Factors resulting in the estimated shortfall include the following:
- We estimate that general purpose revenues will grow by approximately $300 million by 2000-01. This revenue supports operations over which the county has discretion.
- Funding under the Disproportionate Share Hospital program and the Medicaid Demonstration Project which the county currently relies on is set to expire by 2000-01. Combined, this represents a loss in revenue of about $380 million.
- Approved salary increases and escalating debt service costs will add approximately $319 million to county costs in 2000-01.
- Changes in state law related to funding of trial courts will save the county about $91 million in 1998-99. This savings should continue to benefit the county in 2000-01.
- At present, the county annually uses about $300 million of retirement system investment earnings that exceed system funding obligations. We project that this source of funding will be available past 2000-01. However, the eventual loss of this funding will place an additional burden on general purpose revenues unless the county identifies replacement funding.
- The county continues to incur overtime costs in excess of budgeted amounts. When this occurs, the county must cut other costs or identify new funding to cover the overage.
- Because of limited funding, the county has unmet needs related to capital improvements. General purpose revenues will likely be used to meet some of these needs.
The county should continue to closely monitor each department's budget and the major components within it to help ensure that the county continues to meet its overall budget. In addition, the county should continue to seek long-term solutions to its budget difficulties, paying particular attention to ways it can enhance its discretionary revenues while limiting increased burdens on these revenues.
The county generally agrees with the recommendations that we make in this report. In addition, the county plans to begin eliminating its reliance on excess pension funds to finance ongoing programs. Further, the county is continuing to refine its multi-year budget planning effort which will include projections for revenues and costs for two years beyond the proposed budget year.