LA City Controller Kenneth Mejia releases the Annual Comprehensive Financial Report (ACFR) each January to provide a complete picture of the City’s finances. This website contains the Popular Annual Financial Report (PAFR), a summary of the ACFR that presents the information in a more accessible format, along with charts and graphs measuring how the City serves residents.
Click here for the full FY2023 Annual Comprehensive Financial Report
A Message from City Controller Kenneth Mejia
Community Members of the City of Los Angeles
As the Controller for the City of Los Angeles, our Office has the Charter responsibility to prepare and publish the City’s Annual Comprehensive Financial Report (ACFR) of the City for the fiscal year ended June 30, 2023. I can report a year of strong revenue growth that contributed to record reserves on July 1, the beginning of the current fiscal year.
Unfortunately, it is also my responsibility to report the bad news: this year the City is spending well beyond our actual revenues. Projected deficits for years to come will force wrenching choices that threaten the vital services Angelenos rely on. This is not the result of a sudden economic downturn, but the culmination of years of short-term budget balancing at the cost of long-term fiscal sustainability.
Grim news requires serious long-term solutions for the future
We’ve already seen the whiplash as the State of California has gone from a record- breaking surplus to a projected huge deficit next fiscal year. While not as dependent on volatile revenues as the State, the reality is that both the strong economic recovery from the pandemic and major Federal emergency aid are behind us. Not only has revenue growth slowed, it is falling far short of the optimistic projections contained in this year’s adopted budget. Meanwhile, spending is exceeding expected levels. The estimates of the City Administrative Officer contained in his recent January statement point to a budget shortfall in excess of $143 million to be addressed by a partial hiring freeze and tapping the City’s Reserve Fund. The shortfall could swell to as much as $400 million next year, according to the CAO.
Even as we look back on the positive results from the prior year, the warning signs were there:
- As previously reported, despite widespread staff vacancies, General Fund departmental spending actually exceeded last year’s adopted budget by nearly $200 million. Had the vacancy rate been closer to normal, the budget would have been in the red.
- As our Office has consistently pointed out, citywide deferred maintenance of vital infrastructure requires urgent attention. Last year’s underspending of $316 million in budgeted capital expenditures underscores that the City continues to fall behind – which means even higher costs in the long run.
- Again, as we have warned, current staff shortages and long-term underinvestment in the training, technology, equipment and facilities for our workforce hobbles productivity and shortchanges our residents. The homelessness crisis and the reality of a changing climate put even further strain on City resources.
The contract for rank-and-file police staff ratified last fall will add nearly a billion dollars in additional costs over the next four years, with the likelihood of commensurate increases in compensation for police management. The new five-year contracts negotiated with civilian bargaining units will have an even larger budget impact, putting budget projections deeply in the red for the next five years.
Without a long-term approach to putting our fiscal house in order, short-term decisions will doom Los Angeles to an inexorable decline in public services, undermining our quality of life and the economic prospects of our residents.
Nothing short of a serious, strategic five-year plan to fix our City’s finances can meet this moment. Scrambling every year to paper over budget gaps will result in ever-worsening political pain and economic hardships.
A transition to a two-year budget cycle would save enormous staff time, give greater opportunity for meaningful community participation, and allow for a more strategic approach to the City’s Finances. The City also needs a transparent Capital Improvement Program beyond the current wish list of billions of dollars in unfunded projects. Participatory budgeting, expanded beyond its current experimental pilot, would offer greater citizen engagement in the City’s fiscal health.
The City should also break with the opaque process where annual departmental budgets are simply marginally adjusted (up or down) without fundamentally altering the long- standing budgetary status quo. Given the daunting financial realities, the City needs to undertake a strategic reallocation of resources to what matters most to the long-term wellbeing of all of our residents. Budgets are not just numbers; they are a statement of values. As our city changes, so should our financial priorities.
Our Office is eager to collaborate with the Mayor, Council, and greater community to reform the City’s budgeting process and priorities. This must be a long-term commitment because the problems are long-standing and will require a phased approach to solving. Budget reform and more accountable stewardship of the public’s resources are vital to minimize abrupt service cuts (which disproportionately hurt our most vulnerable) – especially if economic conditions deteriorate.
Los Angeles is a vibrant, dynamic center of one of the world’s most diverse and influential regions. Our City has the potential to restore fiscal health, improve vital City services, and lead the world in confronting climate change, housing insecurity, and a changing economy. It would be tragically short-sighted not to tackle the City’s fiscal challenges to capture that potential. We must put our City on the path to fiscal sustainability so we can do the job our residents expect us to do.
My staff and I appreciate the cooperation shown by City departments as we prepared this report. Should you have questions or require additional information, please contact my Director of Financial Analysis and Reporting, Rahoof Oyewole at email@example.com.
Los Angeles City Controller
About Popular Annual Financial Reporting
Government Finance Officers Association of the United States and Canada (GFOA) has given an Award for Outstanding Achievement in Popular Annual Financial Reporting to the City of Los Angeles for its Popular Annual Financial Report for the fiscal year ended June 30, 2022. The Award for Outstanding Achievement in Popular Annual Financial Reporting is a prestigious national award recognizing conformance with the highest standards for preparation of state and local government popular reports.
In order to receive an Award for Outstanding Achievement in Popular Annual Financial Reporting, a government unit must publish a Popular Annual Financial Report, whose contents conform to program standards of creativity, presentation, understandability, and reader appeal. An Award for Outstanding Achievement in Popular Annual Financial Reporting is valid for a period of one year only. We believe our current report continues to conform to the Popular Annual Financial Reporting requirements, and we are submitting it to GFOA to determine its eligibility for another Award.
The City and its surrounding metropolitan region feature incredible diversity in both population and the economy. Tourism and hospitality, professional and business services, international trade, entertainment production, and wholesale trade and logistics all contribute significantly to local employment. The Port of Los Angeles handles the largest volume of containerized cargo of all U.S. ports and ranks as number one in cargo value for U.S. waterborne foreign traffic. According to preliminary ACI statistics, in the calendar year 2022, Los Angeles International Airport (LAX) was the sixth busiest airport in the world in terms of total passengers and ninth busiest in terms of total cargo metric tons. According to the U.S. DOT originating and destination (O&D) Survey of Airline Passenger Traffic for calendar year 2022, LAX had the largest number of domestic O&D passengers in the U.S. O&D passengers begin and end their journeys at LAX, while connecting passengers transfer to other flights at LAX.
The post-pandemic economic recovery continued through fiscal year 2023 and resulted in robust General Fund revenue growth for the City. The strong revenues allowed the City to end fiscal year 2023 in a solid financial position, with a July 1, 2023 Reserve Fund balance of $648.3 million, an all-time high.
There are several economic factors that could impact revenues and the overall City’s fiscal position in the upcoming year. According to the University of California (UCLA) Anderson Forecast, while the California economy is growing faster than the U.S. economy, there is a risk that high interest rates might still disrupt the current expansion on the downside. Even though recession worries have subsided, increased military conflict abroad and a sense of greater geopolitical risk have kept uncertainty about the future high. The uncertainty factor, combined with a slower-growing U.S. economy in 2024, suggests a slower-growing California economy in 2024.
The unemployment rate within the City of Los Angeles appears to be inching up as well. Although labor disputes involving SAG-AFTRA, Writers, and Longshore workers that consumed most of 2023 have subsided, the Los Angeles Hotel workers' strike is still unsettled. According to the California Employment Development Department, the unemployment rate for the City of Los Angeles metro area rose from 4.6 percent in November 2022 to 5.3 percent in November 2023.
Another factor is the higher mortgage interest rates, which continue to put downward pressure on real estate sales volume and prices. According to the California Association of Realtors’ November 2023 Sales Report, although the median price was up by 7.2 percent in Los Angeles, sales volume declined by 5.1 percent compared to November 2022. These economic factors contribute to downward economic pressures which could negatively affect the City’s economically sensitive revenue sources and the City’s financial position in 2024.
Demographic and Economic Data
The City operates under a Mayor-Council form of government. The Mayor supervises the administrative processes of the City and works with the City Council in matters relating to legislation, budget and finance. The 15-member City Council enacts ordinances, levies taxes, authorizes contracts and public improvements, adopts zoning and other land use contracts, and provides necessary resources for the budgetary departments and offices of the City. The City Controller and City Attorney are independently elected citywide.
The City has 46 departments, bureaus, commissions and offices, 39 of which have their operating funds annually budgeted by the City Council. The Department of Water and Power, Harbor Department, and the Department of Airports are publicly-owned entities under the control of boards appointed by the Mayor and confirmed by the City Council. Several other departments are fiscally independent or under the control of independent boards.
Public services provided by the City include police, fire and paramedics, residential refuse collection and disposal, wastewater collection and treatment, street maintenance and traffic management, enforcement of building safety laws, libraries, recreation and parks, community development, housing and services for seniors, planning; two airports, harbor, power and water services, and the convention center. Performance data on some of these services is collected below in the “City Activities” section.
Key TermsGovernmental Activities:
Functions of the City that are primarily supported by taxes and intergovernmental revenues. These include general government, police, fire and paramedics, public works, health and sanitation (other than sewer services), transportation, cultural and recreational services, and community development.Business-Type Activities:
Functions and services provided to the general public, that are intended to recover all or a portion of their costs through user fees and charges. These include airports, harbor, power, water, sewer and convention center services.Net Position:
The difference between the value of what the City owns minus the value of what the City owes. One can look at net position as the City’s "net worth."General Fund:
The main operating fund of the City, which is used to finance general government operations.Capital Assets:
These include land, buildings, facilities, equipment, infrastructure, intangibles, construction in progress, nuclear fuel and a natural gas field that the city owns. The City uses these capital assets to provide services to its citizens; consequently, these assets are not available for future spending.
Total City Revenues: $21.6 billion
For the fiscal year that ended on June 30, 2023, total City revenues were $21.6 billion, an increase of 8.4% over the prior year.
Total revenues of governmental activities were $10.2 billion, while the combined operating revenues from City’s six business-type activities was $11.4 billion.
Total City Expenses: $19.6 billion
For the fiscal year that ended on June 30, 2023, expenses were $19.6 billion, 18.2% more than the prior year.
Total expenses increased by $3.0 billion or 18.2% compared to FY 22. Expenses increased by $2.1 billion in the governmental activities primarily in the following functional areas: general government by $605.4 million, protections of persons and property by $1.0 billion, public works by $128.6 million, health and sanitation by $183.4 million, transportation by $78.0 million, cultural and recreational services by $108.7 million, community development of $1.5 million, and interest on long-term debt of $56.1 million and $839.4 million increase in the City’s business-type activities.
City of Los Angeles’s Net position provides insight into the City’s financial position as of June 30, 2023. It includes a summary of what the City owns (assets and deferred outflows) minus what the City owes (liabilities and deferred inflows).
Assets represent what the City owns:
- Cash and pooled investments
- Capital assets (land, buildings and infrastructure)
Total City Assets: $86.9 billion.
Deferred Outflows of Resources: $5.2 billion.Total: $92.1 billion.
Liabilities represent what the City owes:
- Bonds and notes
- Claims and judgments
- Unearned revenue
- Accounts payable and accrued expenses
Total City Liabilities: $58.8 billion.
Deferred Inflows of Resources: $2.7 billion.Total: $61.5 billion.
Net Position: $30.6 billion, $2.0 billion, 7.1% increase from FY 22
The City’s net position is illustrated in the table below:
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The net position of $30.6 billion consisted of:
Net investment in capital assets: $22.7 billion, including land, building, infrastructure and equipment, less accumulated depreciation and outstanding debt, deferred outflows and deferred inflows of resources related to acquisition, construction or improvements. This is an increase of $401.6 million over FY 22.
Restricted Net Position: $6.9 billion, which represents amounts with constrained placed on their use by (1) external groups such as creditors, grantors, contributors, or laws and regulations of other governments or, (2) law through constitutional provisions or enabling legislation. This is an increase of $779.6 million over FY 22.
Unrestricted Net Position: $971.9 million is the net unrestricted amount. Compared to FY22, the overall unrestricted position increased by $857.5 million, primarily due to a combination of reduction in governmental deficit by $12.8 million and an increased in business-type of $844.7 million.
Dollars In – General Fund Revenues:
City of Los Angeles’ government resources and services are funded through several different revenue streams. In FY 2023, the City collected General Fund revenues of $6.7 billion with the majority received through taxes which makes up $5.7 billion or 84.6% of General Fund revenue.In FY 23, General Fund revenues of $6.7 billion was a 9.3% increase from FY 22, and exceeds General Fund expenditures by $745.5 million.
- Property taxes, which represent 39.4% of General Fund revenue, increased by $166.1 million (6.7%), due to growth in current secured property tax receipts of $150.5 million, a combined increase of $55.5 million from vehicle license fees replacement and Ex- Community Redevelopment Agency tax increment receipts, and offset by a decrease of $45.8 million in prior secured property tax receipts.
- Economy-sensitive revenues continued post pandemic recovery: Sales tax increased by $10.7 million (1.5%) as a result of improvement in local economic activity, while business tax grew by $60.4 million (8.0%) due to growth in non- cannabis offset by a decrease in legal recreational cannabis. Utility users’ tax revenues posted an increase of $73.1 million (11.6%), as growth in gas users’ tax and electrical users taxes, offset the modest decline in communications users tax. Gas user taxes contributed $61.7 million of the increase in this category primarily due to the increased energy prices and consumption during much of the fiscal year.
- Other tax revenues were up by $42.4 million or 5.4%, primarily due to increases of $59.8 million in Transient Occupancy Tax, $21.4 million in Parking Occupancy Tax receipts and $63.6 million increase in Franchise Income from high natural gas prices. These increases were offset by the reduction of $100.4 million in Documentary Transfer Tax revenue due to continued real estate sales volume and pricing declines.
- Charges for services, provided to Enterprise Funds increased by $49.9 million or 15.2% over prior fiscal year.
- Net investment earnings and other revenues increased by $131.4 million due to a total increase of $147.2 million in investment earnings and a change in the fair value of investments resulting from the higher interest rates, partially offset by a $15.7 million decrease in other revenues.
Dollars Out – General Fund Expenditures
The City of Los Angeles provides a wide range of services to residents ranging from public safety, fire and paramedics, residential refuse collection and disposal, wastewater collection and treatment, street maintenance and traffic management, enforcement of building safety laws, libraries, recreation and parks, community development, etc.
The operating fund from which the City accounts for the money coming in and the expenditures paid out is the General Fund.
In FY 23, General Fund Expenditures was $6.0 billion, $238.7 million (4.1%) increase over FY 22, primarily due to the following:
- Salaries and Benefits increased by $69.6 million (1.9%), due to payment to certain labor organization members for deferred compensation adjustments and cash awards, and workers' compensation and liability payouts.
- Capital outlays increased by $13.8 million or 25.5%, mainly attributed to the recognition of $5.7 million in right-to-use (RTU) subscription contracts for GASB 96 implementation and a $5.0 million increase in vehicle and transportation equipment acquisition.
- Contractual services, operating equipment, and supplies went up by, $86.2 million or 8.7%, primarily attributed to increased fuel and utility costs and other commodity prices for citywide departments.
- Debt service payments increased by $50.0 million, primarily attributed to the increase of interest expenditures due to higher interest rates.
How Much Does The City Owe?
Bonded Debt and Long-Term Notes Payable: $39.2 billion, 5.0% increase from FY 22
The City has established guidelines for the structure and management of the City’s debt, which include target and ceiling levels for certain debt ratios to be used for financial planning purposes and restrictions on the types of items that can be financed, limiting financing only to those items with a useful life of six years or more. In accordance with this policy, the ratio of annual debt payments cannot exceed 15% of General Fund revenues for voter-approved and non-voter approved debt overall, and cannot exceed 6% of General Fund revenues for non-voter approved debt alone. The 6% ceiling for non-voter approved debt may be exceeded only if there is a guaranteed new revenue stream for the debt payments and the additional debt will not cause the ratio to exceed 7.5%, or there is no guaranteed revenue stream but the 6% ceiling shall not be exceeded for more than one year.
- For Fiscal Year 2023, the ratios were 3.9% for overall debt and 2.4% for non-voter approved debt.
- Of the $39.2 billion long-term bonds and notes payable, $1.1 billion were General Obligation bonds.
- As of June 30, 2023, the City was in compliance with its Debt Policies.
Ratings of the City’s General Obligation Bonds
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