City Helped by Real Estate Sales, but Still Facing Budget Shortfall

A rebound in local real estate sales has brightened the financial picture for Los Angeles city government, helping make up for losses in other areas, according to a new report by the city’s administrative officer.

But Los Angeles still faces a $22.3-million shortfall because of dwindling tax revenue and increased security costs unless city officials take steps to make cuts, City Administrative Officer William Fujioka wrote in a report sent to city officials Tuesday.

Like other governments, Los Angeles has been hurt by the economic slowdown. Hotel tax receipts are down 11% from last year. In the fall, city officials predicted that declining sales and empty hotels would reduce the tax revenue that pays for city services included in Los Angeles’ $3-billion budget.

Faced with those predictions, Mayor James K. Hahn in October implemented a city hiring freeze and asked each department to come up with a plan to reduce spending by 10%.

Those cost-cutting measures, according to Fujioka, are now expected to save the city $49.4 million. The budget reduction proposals must be approved by the City Council.

Meanwhile, the city has been helped by strong real estate sales in the summer and fall. Officials had predicted a 5% decline in sales for the fiscal year. Instead, real-estate-related tax receipts are up by almost 4%.

The proposals from city departments for saving money include a wide variety of ideas. Among them are proposals to defer building skate parks, to pay for new police and fire equipment with bonds instead of cash, and to not fill vacancies in the library systems while some branches are closed for renovations.

“In tough financial times, this is a road map to get us to the end of the year in good financial shape,” Deputy Mayor Matt Middlebrook said. “It’s dependent on ensuring the departments and the City Council are disciplined about savings.”

If the cuts are implemented, the mayor will consider lifting the ban on city hiring, Middlebrook added.

City Council President Alex Padilla said the council will evaluate the proposals in the next few weeks and consider each cut on a case-by-case basis.

“I am optimistic that given the diversity of our local economy and the magnitude of the dollars we deal with at city level, we’re in pretty good shape to weather the storm,” Padilla said. “I don’t foresee any drastic cuts . . . just a little tightening of the belts.”