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Los Angeles has more cash than expected in its emergency reserve fund, but still faces huge unknowns that could put the city's budget in jeopardy, City Controller Wendy Greuel said Thursday.
In a preview of a financial report to be released later this month, Greuel said she found $23.5 million more than expected in the city's reserve fund, about 4.6 percent of total anticipated city receipts.
The extra money was a result of city departments saving money, not from new revenues, and the $200.7 million in the reserve account is still below what is required by city policy, Greuel said in a letter to Mayor Antonio Villaraigosa and City Council members.
She highlighted four significant risks that still plague the city's budget.
Turmoil in the national and international economies threaten a 1.8 percent increase in city revenues that Villaraigosa's 2011-12 city budget relies upon, according to the controller.
Greuel said the reliance on a projected revenue increase could be a problem because the majority of the city's tax receipts do not come in until after Jan. 1, leaving the City Council and department heads with little time to adjust if the revenue is less than expected.
The city is also at risk of having to pay out an estimated $750 million in damages after the state Supreme Court ruled in July that a class-action lawsuit against the city can go forward. The suit filed in 2006 claims the city unlawfully over-taxed residents' phone bills for a period of time before voters approved a lower tax rate.
Greuel said the budget for fiscal year 2012-13 is expected to start with a roughly $196 million deficit. She warned Villaraigosa and council members to begin working together on the budget now.
She also said proposed state accounting rules regarding how the city reports its pension funds could put pressure on officials to "change the current pension funding methodology.''
"Despite the good news about our reserve fund cash balance, Los Angeles' fiscal outlook continues to be depressed by the broader economic climate,'' Greuel wrote. "In these difficult economic times, Los Angeles needs to continue tightening its belt to put us back on the path towards budgetary sustainability.''
Greuel plans to release a report in about a month recommending a widespread restructuring of city government, centered around priority-based budgeting, also known as zero-based budgeting.
"Never do (departments) have the opportunity to go back and say, `What are the basic services we should be providing ... and how much does it cost to provide those services?''' she said.
The report will recommend a pilot period of zero-based budgeting for some city departments.