Two L.A. City Controller Reports Show Budget Shortfall, Pension Liabilities

Posted on March 01, 2016 at 11

LOS ANGELES – Controller Ron Galperin released two reports detailing the state of the City’s finances: The Financial Forecast Report, in which analysts in the Controller’s office make financial projections for the current and coming year; and the Comprehensive Annual Financial Report (CAFR), itemizing the City’s revenues, expenditures, assets and liabilities for fiscal year 2014-15 (July 1, 2014 - June 30, 2015). This year’s CAFR also details the liabilities associated with employee and retiree pensions.

 Forecast Predicts General Fund Shortfall

Controller Galperin’s Financial Forecast Report predicts that General Fund receipts for FY 2015-16 will come in at approximately $5.2 billion, up to $169.7 million less than anticipated by the City budget, which the Council adopted in May 2015. (The total budget -- excluding the City’s three proprietary departments -- is $8.6 billion, including special funds, debt service and other expenses.)

This year’s projected General Fund revenue shortfall is largely the result of lower than expected revenues from “property tax in-lieu of sales tax” receipts--monies the City receives from the State of California under a decade-old mechanism affecting state and local finances. The City will get $36.7 million in those funds this year--$90.6 million less than what it expected to receive. However, $63.6 million of that amount is expected to be remitted to the City by the State in FY 2016-17.

Galperin said that the City may have to borrow and/or transfer funds from its reserve accounts in order to meet the City’s obligations, but he urged caution.

“Though there will be many competing demands on the treasury in the coming months, we should proceed carefully in order to ensure that we are both fulfilling our commitments and continuing to maintain healthy reserves,” said Controller Galperin.

As of January 2016, the City’s Reserve Fund held $402 million, 7.4% of budgeted General Fund receipts--which is considered to be a healthy amount when compared to historical levels. In previous years it has been as low as $11 million (FY 1997-98). (Under City policy, an amount equal to 5% of budgeted General Fund receipts must be set aside each year in the Reserve Fund, which is essentially the City’s savings account.)

The findings of Galperin’s office parallel a recent report issued by the City Administrative Officer, which projected a revenue shortfall of $119 million (First Financial Status Report of Fiscal Year 2015-16, C.F. 15-0600-S94, February 26, 2016). The Controller’s office, however, predicts a likely larger shortfall pursuant to the City Charter’s framework for Controller projections.

The Controller’s Office prepares its annual Financial Forecast Report to help guide policymakers as they prepare the City’s budget. It is based on revenue projections from City departments; recent economic reports; and the input of leading local economists, including Beacon Economics,, the Los Angeles County Economic Development Corporation, Pannel Kerr Forrester Consulting, and the UCLA Anderson School of Management.

CAFR Records Pension Liabilities

City finance-watchers will discover something new in the Controller’s FY 2014-15 Comprehensive Annual Financial Report (CAFR) that wasn’t in previous reports. For the first time ever, pension liabilities have been recorded and detailed on the City’s balance sheet.

“This is an important step toward increasing transparency with respect to the City’s finances,” said Controller Galperin. “The numbers we’re reporting this year more accurately reflect the City’s financial reality.”

According to the CAFR, the City currently has $35 billion in future total liabilities--what it owes its pension funds. Much of this money will be paid out over the long-term.

In last year’s report, liabilities were closer to $26.5 billion. The primary reason for the jump? Galperin’s team implemented a new government reporting standard that requires the City to record its liability associated with employee pensions.

On the other side of the ledger, the report showed the City had $57.5 billion in total assets. The net book value of the City’s capital assets was $39.5 billion.

The CAFR, which Galperin’s office prepares in accordance with the City Charter, is used by credit rating agencies, banks, lenders and other stakeholders to determine the City's overall economic health.

Community Financial Report

In addition to the release of the CAFR, Galperin’s office once again released a Community Financial Report and interactive dashboard of operating information. Both are designed to give the public a quick and easily understood overview of the City’s finances and structure. Last year, for the first time ever, the Controller’s office was recognized for Outstanding Achievement in Popular Annual Financial Reporting by the Government Finance Officers Association (GFOA), which sets standards and policies for these reports.

The Financial Forecast, CAFR and Community Financial Report are available at