LA Braces for Furloughs, Up to $400 Million Loss in Revenue

Screenshot of Los Angeles City Councilman Paul Krekorian, the lone physical attendee at a city budget meeting on Monday.

LOS ANGELES (CN) — Deep budget cuts will be felt across the city of Los Angeles for the rest of the year and thousands of employees will be furloughed, but the true impact of the Covid-19 pandemic on the city may be a loss of revenue ranging from $45 million to $400 million.

The tourism industry has dried up and the flow of business taxes to the city have slowed down to a trickle. And while the city’s emergency response to the Covid-19 pandemic could reach $44 million per month — 90% of which is supposed to be covered by federal and state funding — the commitment is up in the air as a looming recession muscles into all financial forecasts, City Administrative Officer Richard Llewellyn Jr. aid Monday during a budget and finance committee meeting.

“They haven’t said no but they haven’t said yes,” said Llewellyn.

By this summer, LA could have spent $133 million on protective medical gear, rental assistance for businesses and tenants, erecting a surge hospital at the LA Convention Center and other services as well as Covid-19 testing for all residents within the city limits.

To lessen the financial blow to the proposed $10.5 billion budget by Mayor Eric Garcetti, roughly 16,000 city employees could be furloughed. But officials asked the city analyst and department heads to crunch the numbers on the furloughs and work out solutions with employee unions for any alternatives.

Garcetti’s full budget will go to the City Council later this month, but the outlook on the horizon is dire all around.

Finance officials presented three likely scenarios for when and how the economy could recover from the coronavirus pandemic.

An optimistic scenario puts LA at $45 million below the previous year’s revenue stream if the economy bounces back quickly. The next best scenario is a $200 million shortfall in receipts if the recovery is slower and the most shocking outlook is a $400 million shortfall if the impacts linger and the recovery is much slower, according to the Department of Finance director Claire Bartels.

That forecast is on top of the proposed budget and furloughs.

“Not just a low note but an exclamation point from what we’ve been hearing about the rest of the day,” said Councilman Paul Krekorian at Monday’s hearing. Krekorian wore a cloth mask and was the only member in the council chambers while other members attended remotely.

As of May 1, monthly receipts from hotels and short-term rentals collected by the city of LA declined by 11% for the month of February and 77% for the month of March, according to the report on impacts to revenues from Covid-19 presented to the city’s committee.

Budget advisers said reserve funds were quickly tapped to record lows not seeing since the Great Recession. Chief legislative analyst Sharon Tso said the city would be heading down a dangerous path if it relied on “one-time” funds from reserves.

“Once you’ve used them, you’ve used them,” said Tso.

Councilman Mike Bonin said, “This is a miserable time. And this is a pretty miserable budget. We’re going to be facing some miserable choices.”

Garcetti’s proposed furloughs would save $139 million.

Last month, LA Controller Ron Galperin’s office forecast the city could lose $110 million in hotel taxes and permit fees from the disintegrating travel and tourism industry. Galperin’s office predicted a total $231 million shortfall for the end of the fiscal year, which ends June 30.

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