One of the City Controller’s primary responsibilities is analyzing and reporting on the City’s financial health. The Preliminary Financial Report, made available each October after the City closes its books, is the first of such reports each year. It provides information on how the City spent its money over the past fiscal year, with data and analysis of the City’s revenues, expenditures, reserves and bonded indebtedness.
Last fiscal year saw solid growth, with many General Fund revenue sources outperforming Budget projections and exceeding the previous fiscal year. While the post-pandemic revenue growth has been strong, efforts to rein in inflation are likely to cool economic growth and potentially tip the economy into recession at some point.
This Office continues to advocate for reform of the City’s outmoded budget practices. 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.
Scroll below to view the interactive data visualizations. You can also read the Controller’s cover letter down below or access the full report by clicking here:
Preliminary Financial Report for Fiscal Year 2022-2023
Each year at this time, the Controller’s Office submits the Preliminary Financial Report (PFR) to review the City of Los Angeles’ financials for the prior fiscal year. Our report is the City’s primary look back at municipal finances after the close of the fiscal year, providing an overview and analysis of revenues, expenditures, reserves and bonded indebtedness. In January 2024, the Controller’s Office will follow up by issuing the Annual Comprehensive Financial Report for 2022-2023, which is prepared in accordance with Generally Accepted Accounting Principles and audited by an independent firm of certified public accountants.
Accompanying this report are online interactive visualizations with 10 years of data, which may be found at https://controller.lacity.gov/reports/pfr23. Information on special fund balances and uses, historic Reserve Fund balances, and other budgetary information may also be found on my website.
While this report covers the previous fiscal year, it is meant to help City leaders understand and assess the health of the City’s finances – as well as to address future challenges.
Continued Recovery
General Fund revenues were marked by strong 9% growth over the previous fiscal year. That performance exceeded the adopted budget projections by $135.7 million. General Fund budgetary department’s actual expenditures increased by 6.6% over the previous fiscal year and exceeded the adopted budget by nearly $200 million or 4.1%. This was offset by savings of $120 million in the Unappropriated Balance and $155 million in General City Purposes spending. The combination of higher than anticipated revenues and lower than expected total expenses saw the City’s General Fund begin this fiscal year with General Fund reserves (Reserve Fund, Budget Stabilization Fund and Unappropriated Balance line item set aside for mid-year adjustments) at a record-high $876.3 million or 11.1% of the General Fund, exceeding the City’s goal of 10% reserves
Overall, all City spending for all budgeted funds (including the General Fund) was $1.2 billion below the level in the Adopted Budget. Special purpose funds accounted for nearly $600 million of those savings, along with $316 million in underspending on capital projects.
The report highlights a number of key indicators:
● Major contributors to the strong revenue increase include Utility Users Tax revenue ($93 million above budget) primarily from higher natural gas and electric prices; franchise income ($53.7 million above); Transient Occupancy (Hotel) Tax $46.8 million above); and Business Tax ($38.9 million above).
● Some revenue sources fell below budget projections: Documentary Transfer Tax ($77.3 million below); Licenses, Permits and Fines ($40.8 million below); Parking Fines ($21.million below); and Grant Receipts ($15.6 million below).
● While staff vacancies resulted in $118 million in savings among civilian employees, Police and Fire salaries were $29 million over their budgeted amount. The overspending was attributed to increased overtime, unbudgeted salary payouts associated with agreements with sworn employee unions and excess sick payouts.
● Liability pay-outs of $172.5 million exceeded budget by nearly 100%.
● The City’s debt ratio remains well below the limits under City policy, providing the potential for expanded capital investment if revenue flows can support new borrowing.
● The City is not spending what it is budgeting for which means less services, resources, and infrastructure are being provided for Angelenos.
● While chronic staffing shortages reduce compensation outlays, retaining and attracting staff to fill those jobs puts a double strain on finances going forward as raises and new hires absorb higher revenues.
Hard choices lie ahead
Despite widespread staff vacancies, General Fund departmental spending actually exceeded last year’s adopted budget by nearly $200 million, meaning that rebuilding the City’s workforce will make it more difficult to balance the General Fund budget in the future.
● Major contributors to the strong revenue increase include Utility Users Tax revenue ($93 million above budget) primarily from higher natural gas and electric prices; franchise income ($53.7 million above); Transient Occupancy (Hotel) Tax $46.8 million above); and Business Tax ($38.9 million above).
● The contract for rank and file police staff 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 and the larger civilian workforce. All by themselves, these adjustments tilt future budgets into structural deficits.
● As our Office has consistently pointed out, pension debt and citywide deferred maintenance of vital infrastructure require 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, staff shortages and underinvestment in the training, technology, equipment and facilities for our workforce hobbles productivity and shortchanges our residents. All these pressures will tempt decision-makers to utilize the City’s reserves for short-term fixes, dashing the hard-won gains of fiscal prudence for maintaining those funds to protect against genuine emergencies and maintain strong credit ratings to minimize the cost of capital bonding.
To address these sobering concerns, this Office continues to advocate for reform of the City’s outmoded budget practices. A transition to a two-year 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.
By taking the long view and reforming our budgeting practices, the City can better serve everyone in our community. Budget reform and more accountable stewardship of the public’s resources can also minimize abrupt service cuts (which disproportionately hurt our most vulnerable) if economic conditions deteriorate
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, Wally Oyewole at rahoof.oyewole@lacity.org.
Respectfully submitted,
KENNETH MEJIA
City Controller
During the 2022-23 fiscal year, total revenues in budgeted funds were $10.9 billion, a 6.5% increase over the prior year and 0.3% less than the budget.
General Fund revenues totaled $7.6 billion, a 10.1 percent growth compared to the prior year, and $135.7 million or 1.8 above the budget.
Revenue in budgeted special revenue funds was $3.2 billion, a decrease of 1.1% from the prior year, and 4.8% under the budget.
Use this interactive data visualization to explore the relative sizes of the City’s revenue sources and their growth over the past 10 years.
Total expenditures, including encumbrances were $10.6 billion, which is $647 million or 6.5% higher than the year prior as spending increased across nearly every category.
This interactive data visualization compares the expenditures of the City’s different departments, as well as non-departmental expenditures, over the past 10 years.
The Reserve Fund is established to ensure that funds are available for unanticipated expenditures and revenue shortfalls in the General Fund. The City’s Reserve Fund Policy sets a goal for the Reserve Fund to be at least 5% of the General Fund budget every year. On July 1, 2023, the Reserve Fund had a balance of $648.3 million, 8.2% of the General Fund budget and well above the 5% Reserve Fund Policy goal.
The Budget Stabilization Fund (BSF) was added to the City Charter in 2011. The purpose of the BSF is to set aside funds when the City exceeds revenue projections to help smooth out years when revenue is stagnant or in decline. In fiscal year 2023, the BSF grew slightly to $195.8 million.
Click the chart below to view the performances of the Reserve Fund and Budget Stabilization Fund.
The City’s debt management policy establishes guidelines for the structure and management of the City’s debt obligations. These guidelines include a non-voter-approved debt service cap of 6% and a total debt service cap of 15% as a percent of General Fund revenues. The City’s debt service obligations decreased to 3.9% last fiscal year.