This morning's meeting of the Lake County (Florida) Commissioners resulted in the Commissioners arguing over whether to draw down their General Fund cash reserves to the "bare bones" limit of $10-million, or whether they should set a limit of $15-million or $25-million as the baseline for reserves JUST for the General Fund, not including other funds. Most of this came out due to grilling by Commissioner Jimmy Conner by asking questions of the visiting partner from the CPA firm that just finished the annual financial audit of the County Financial Statements (know as the CAFR). They decided to table a decision for a future workshop.
Then, this evening, it was announced that the City of Los Angeles may go broke by June 30 because they failed to cut costs quick enough, and now the City Controller is asking to take money out of their reserves just to...
pay salaries. She said their General Fund, used for salaries, will be "empty" as of May 5 if they don't start using reserves. That indicates poor budgeting, because paying salaries from reserves indicates they didn't cut their budget enough earlier to prevent needing the reserves. Normally reserves are to pay for catastrophes, and not normal operating costs. However, one reason for the budget shortage is that the local utility is refusing to make an expected payment to the City, AND they have done that in the past.
The Los Angeles house of cards was triggered by the City Council refusing to allow the local and INDEPENDENT Los Angeles Dept. of Water & Power (known as DWP) to hike utility rates, so the utility is now refusing to transfer $73-million to the City as a normal payment in lieu of property tax payments.
Keep in mind the City of Los Angeles only holds 5% of their budget as reserves, which is ludicrous in this economy. Thus the City has already started the process to layoff 1,000 worker by June 30, and another 3,000 next year.
This is the kind of unknown emergency that could cause a need for a reserve fund, and the Lake County Board of Commissioners should take heed, and maybe hold to a reserve of 25% of the General Fund, which is what they did in the past when tax revenues were increasing each year. There may be a much bigger need for reserves now due to the economy.
vj
Los Angeles could be broke by June 30 following the Department of
Water and Power's decision to withhold its final annual transfer of
$73.5 million to the city's general fund, the city controller warned
Monday.
Calling it the city's "most urgent fiscal crisis" in recent
memory, Controller Wendy Greuel asked for swift action from Mayor
Antonio Villaraigosa and the City Council.
"It is imperative that you act now," Greuel said in a letter.
"That is why I am asking you to immediately transfer $90 million from
the city's reserve fund so I can continue to pay the city's bills and to
ensure the fiscal solvency of the city."
The general fund, which covers city payroll and contracts,
would be empty by May 5 without the transfer, Greuel said. But using
cash reserves to pay salaries and contracts would deplete the emergency
reserve fund by June 30, she said.
Interim DWP General Manager David Freeman DWP said the
independent utility had to take the rare action of withholding the
transfer payment - which is made in lieu of property tax payments to the
city - because the city council did not approve a recent rate hike
request.
Without the increase in the Energy Cost Adjustment Factor,
Freeman said the DWP will not have enough of a surplus to meet all of
this year's promised $220 million transfer to the general fund.
While it appears there is little the city can do to force the
independently run DWP to make the payment, Councilman "This is retribution for the council's refusal to approve that
increase," said Parks, who chairs the council's Budget and Finance
Committee. "Last year, when we asked them to tell us what their surplus
would be, they said $220 million and we budgeted for that.
"They never said it was contingent on this rate hike. They
told us what they could give us. It is disingenuous now to change their
story."
The City Council last week refused to approve a 6 percent
increase - or .8 cent - on the Energy Cost Adjustment Factor.
Councilmembers suggested the ECAF be raised by .6 cent, while they had
time to assess the impact of the increase.
The DWP board countered with a request to raise it .7 cent - a
move rejected by the council by a 13-0 vote. Meanwhile, the deadline
for imposing the increase expired. The next time the DWP can seek an
increase is for bills in July.
The ECAF is used to absorb the rising costs of supplying
energy, but it has been frozen for the past several years. The DWP this
year asked for increases totaling 28 percent over the next year to cover
cost overruns of about $6 million a week.
Because the City Council vetoed the rate hike, Freeman said
the utility will not have enough cash to pay the city and also fund its
programs.
Freeman said the DWP has $1.2 billion in its debt reserve
fund, but needs to hold on to that money to finance its $5 billion in
bonds expected to be issued for its future infrastructure building
program.
"In this financially challenging environment, we cannot
recommend any additional transfers during the current fiscal year,"
Freeman said.
Councilman Greig Smith, who also serves on the budget panel,
said the DWP was leaving the city in an awkward position.
"There is not much we can do at this point in the process,"
Smith said. "We cannot lay off workers quickly enough to make up that
kind of loss."
Greuel said the DWP move will further complicate things for
already cash-strapped city.
"The question I have been asked most often during the budget
crisis is: "When will the city run out of money?'," Greuel said.
"Unfortunately, we finally have the answer. Without the full transfer, I
now project... the city's general fund will be out of money - in fact
it will be negative $10 million - on May 5."
Without a transfer from the city's reserve fund, Greuel said
the city will have to shut down because city workers could not be paid.
She added that reserve funds, usually about five percent of
the city budget, would likely be used up by June 30.
The city has begun the process of laying off 1,000 workers by
June 30 and plans 3,000 more layoffs next year.
Freeman said this was not the first time the DWP was unable to
make its promised transfer. In 1992-93 and again in 1995 and 1998, the
utility was unable to make payments.
Los Angeles could go broke by June 30
