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City of Los Angeles to Run Out of Money on May 5th, According to Projections

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Photo by current events via LAist Featured Photos on Flickr

Photo by current events via LAist Featured Photos on Flickr
“The question I have been asked most often during the budget crisis is 'When will the City run out of money?' Unfortunately, we finally have the answer," announced City Controller Wendy Gruel this afternoon after the L.A. Department of Water & Power said it would not transfer $73 million to the city's General Fund, which pays for police and other basic city services. "Without the full Power Revenue Transfer I now project that if the City remains on its current path, the City’s General Fund will be out of money - in fact it will be negative $10 million - on May 5th, 2010."Ouch.

Greuel says balancing the budget is likely out of realm at this point and the city's reserve fund balance "could be anywhere from $0 to negative $43 million on June 30th." The consequence of that would leave the city with "no room to cover any additional shortfalls or unexpected emergencies.” (So if Mulholland Drive closes again, city emergency funds may not be around to fix it)

“This is the most urgent fiscal crisis that the City has faced in recent history, and it is imperative that you act now," Greuel said in a letter to the City Council and Mayor, asking for an immediate "transfer $90 million from the City’s Reserve Fund to the General Fund." If city employees cannot be paid, the city cannot "legally permit" them to work. "Unless you take action to transfer $90 million from the Reserve Fund, beginning April 19th, 2010, my office may not be able to pay the salaries of all City employees and/or make payments to vendors."

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The $73 million in question stems from the recent carbon surcharge battle, which Mayor Antonio Villaraigosa touted as rake hike to bring Los Angeles more renewable power. Behind closed doors, but reported widely, the hike would also help save the LADWP's bond rating and budget.

Traditionally, the Board of Water and Power Commission, which oversees the LADWP, makes an annual $220 million transfer to the city's general budget. The DWP has already given about $143 million, but has withheld the remaining $73.5 million, enough to pay for 1,000 jobs. The carbon surcharge debate turned into a quid-pro-quo situation--if the Council would approve Villaraigosa's carbon surcharge plan, the Council would receive the remaining balance and avoid bankruptcy. After some back and forth, the council rejected the surcharge, which prompted today's news that the board struck back.

"This is not the first year in the Power System's history that the anticipated transfer has not been made," noted LADWP Interim General Manager David Freeman in a letter to Greuel. "While the financial plan for the Power System includes a transfer to the City each year, contraints on net income and finnacial challenges can reduce the amount of the transfer."

Freeman said that city law requires the utility to have a "declaration of surplus" in order to transfer the money. "No declaration of surplus can be made at this time," he added.