Audit Projects a $308-Million Annual Shortfall in County Budget

Just weeks after Chief Administrative Officer David Janssen released the first balanced budget proposal in years, the state auditor has concluded that Los Angeles County faces a projected annual shortfall of $308 million within three years.

That deficit, according to a team of financial experts working for Auditor Kurt R. Sjoberg, is due in large part to the Board of Supervisors’ commitment last year to raise employees’ salaries by an average of 12% before coming up with a cohesive plan to downsize the mammoth Health Services Department or wean itself off $300 million in annual pension fund contributions.

Perhaps the most significant problem is that the health department budget relies on about $380 million a year in federal health care funds that will no longer be available in the fiscal year starting July 1, 2000.

At that time, the county also won’t be getting $300 million a year in excess employee pension fund earnings that it has been using to plug gaping holes in its operating budget.

On top of that, the raises to more than 80,000 county employees, combined with the escalating debt service the county will incur to pay for them, will pile on an additional $319 million in annual costs by 2000, auditors reported.

Those payouts are all the more significant, they said, given that they come out of the county’s general fund, which is relatively small compared to the billions of dollars the county spends annually in state and federal monies earmarked for specific purposes.

“Since salaries and employee benefits account for a large portion of the county’s total expenditures, the cumulative impact . . . on the county’s fiscal outlook is significant,” according to the audit, the latest in a series of mandated reviews of the county’s finances in the wake of its fiscal near-meltdown three years ago.

Auditors did, however, report that the county has made great strides in recovering from a fiscal crisis that nearly drove it into bankruptcy in 1995.

But they said it must continue to cut costs dramatically.

The county must cut spending within its 38 departments and closely monitor every aspect of their budgets, minimize overtime abuses, stop relying on temporary and shaky funding mechanisms, and seek long-term solutions to financial problems, auditors said.

Janssen said Friday that the audit’s findings are nothing new to county officials.

“They are reflecting what we already know, that there are two remaining issues that we have to deal with before we can consider ourselves financial sound,” Janssen said in an interview.

He said he has made it clear to the Board of Supervisors that they have to address the projected deficit as soon as possible, and long before it becomes a reality in two years.

The county already is taking steps to do that, Janssen said.

In his budget proposal, he has recommended setting aside $40 million in the upcoming fiscal year to begin weaning itself off the pension money.

And he said the county continues to make sure health officials are aggressively re-engineering and scaling down the health system, just as the federal government ordered it to do in order to receive the health care funds to begin with.

According to the auditors, the county has pledged to slash its health care budget by as much as $294 million a year. But it said the most recent estimates are that it projects annual savings of $205 million by 2000 even “after it has fully implemented the re-engineering plans,” leaving an $89-million gap.

Janssen said those numbers reflect an inherent paradox in what the federal government expects from the nation’s largest county.

Even as Washington insists that the county turn its hospital-based system into one that emphasizes preventive care in outpatient clinics, it continues to adhere to funding mechanisms that heavily favor the more expensive inpatient care, Janssen said.