Three‐Year Plan ReportPresented by:

Miguel A. SantanaCity Administrative Officer

to the:Budget and Finance Committee

April 13, 2015

WHERE HAVE WE BEEN?

April 7, 2010

MOODY'S DOWNGRADES CITY OF LOS ANGELES G.O. RATING

“Moody’s Investors Service has downgraded to Aa3, from Aa2, our rating of Los Angeles’ general obligation bonds….The downgrade primarily reflects the continued erosion of the city’s historically better‐than‐average willingness and ability to quickly rebalance its budget mid‐year….The downgrade also partly reflects the likelihood that the city’s general reserves at the end of the current fiscal year could be materially weaker than we had previously expected….Los Angeles underestimated the full effect of the recession on its revenues and was slow in implementing planned cost savings for the current fiscal year.”

WHAT HAVE WE ACCOMPLISHED?Fiscal Responsibility: Slow and Steady Growth

-4.8%

1.5

2.0

2.5

3.0

3.5

4.0

4.5

-10%

-5%

0%

5%

10%

15%

20%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

$ Billions

% C

hang

e fr

om Y

ear A

go

Fiscal Year Ending

Seven General Fund Taxes

-3.7%

WHAT HAVE WE ACCOMPLISHED?Fiscal Responsibility: Ratings Improvements

0.44%

0.72%

0.26%

0.20%0.17%

0.11%

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

July 10, 2009 June 29, 2010 June 29, 2011 June 27, 2012 June 26, 2013 June 26, 2014

Interest Rate

Sale Date

TRAN Interest Rates

WHAT HAVE WE ACCOMPLISHED?Fiscal Responsibility: Structural Balance

$5,138 $5,127

$5,287

$5,453

$5,648

$5,138

$5,293

$5,472 $5,525 $5,625

($166) 

($185)

($72)

$23 

$4,800

$4,900

$5,000

$5,100

$5,200

$5,300

$5,400

$5,500

$5,600

$5,700

2014-15 2015-16 2016-17 2017-18 2018-19

Mill

ions

Four Year Budget Outlook 2014-15 Adopted Budget

Revenues (Proposed) Expenditures (Proposed)

WHAT HAVE WE ACCOMPLISHED?Fiscal Responsibility: Healthy Reserves

$125.2  $121.0  $120.3  $120.6  $125.1  $133.8  $141.3 

$40.9 $30.7  $51.0  $80.1  $108.0 

$192.8  $241.7 $0.5 $0.5 

$0.5 

$0.5 

$61.5 

$64.1 

3.65% 3.46%3.93%

4.59%

5.13%

7.98%

8.70%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

$300.0

$350.0

$400.0

$450.0

$500.0

2008‐09 2009‐10 2010‐11 2011‐12 2012‐13 2013‐14 2014‐15

Millions

Reserve Fund Balance as of July 1

Emergency Reserve Amount Contingency Reserve Amount Budget Stabilization Fund Amount Total Percent of General Fund

WHAT HAVE WE ACCOMPLISHED?Fiscal Responsibility: Compliance with City Financial Policies

$31.5 

$48.9 

$11.6 

$24.6 

$9.1 

$6.4  $6.5  $6.8 

$51.7 

$54.8 

 $‐

 $10.0

 $20.0

 $30.0

 $40.0

 $50.0

 $60.0

2005‐06 2006‐07 2007‐08 2008‐09 2009‐10 2010‐11 2011‐12 2012‐13 2013‐14 2014‐15

Millions

Proposed Capital Expenditure as Compared to Capital Investment Policy

Proposed Amount Target Amount (1% of General Fund Rev.)

WHAT HAVE WE ACCOMPLISHED?Managing Legal Liabilities

Made strides in addressing our outstanding legal liabilities:

• Willits v. City of Los Angeles:• Ardon v. City of Los Angeles• Romero v. City of Los Angeles• Employee‐related litigation (e.g City Attorneys)

WHAT HAVE WE ACCOMPLISHED?Staffing Levels

13,799 13,807 13,805 13,832 13,944 14,244 14,253 14,012 13,740 13,677 13,647 13,706 13,707

22,080 22,167 21,610 22,324 22,723 22,929 22,718 21,85219,225 18,597 18,170 18,187 18,168

35879 35974 3541536156 36667 37173 36971

35864

32965 32274 31817 31893 31875

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2002‐03 2003‐04 2004‐05 2005‐06 2006‐07 2007‐08 2008‐09 2009‐10 2010‐11 2011‐12 2012‐13 2013‐14 2014‐15

Authorized City Staffing(Not Including Proprietary Departments)

Police (Sworn and Civilian) All Others

WHAT HAVE WE ACCOMPLISHED?Pension Contributions

$1,036.5 

$1,118.3 

$1,181.4 $1,172.1 

$1,148.1 

$1,036.5 

$1,082.8 $1,072.3 

$1,056.2 

$1,018.4 

 $900.0

 $950.0

 $1,000.0

 $1,050.0

 $1,100.0

 $1,150.0

 $1,200.0

2014‐15 2015‐16 2016‐17 2017‐18 2018‐19

Updated LAFPP/LACERS Contributions Projections(Source: Illustratrions of future City contributions prepared by Segal (actuary) as commissioned by the CAO.)

Adopted Budget Projection Updated Projection

Cumulative Four‐Year Savings: 6.9%

$35.5

$109.1$115.9

$129.8

WHAT HAVE WE ACCOMPLISHED?Funded Ratios in Retirement Systems

69.1% 68.1%70.3% 72.5%

74.7% 76.6% 78.4% 80.2%77.3%

80.8%83.5%

86.1%88.5%

90.7% 92.7%

94.5%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2014‐15 2015‐16 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22

Projected Funded Ratio for LACERS and LAFPP (Pensions and Health)(Source: Illustrations of future funded ratios prepared by Segal (actuary) as commissioned by the CAO .)

LACERS LAFPP

WHAT HAVE WE ACCOMPLISHED?Labor Partnerships

• Pension reform for future hires• Lower starting salary• Employee contributions to health care premiums

• Retiree health care contributions• Control compensation by limiting COLAs

WHAT HAVE WE ACCOMPLISHED?

December 11, 2014

MOODY'S UPGRADES CITY OF LOS ANGELES (CA) REAL PROPERTY AND EQUIPMENT LEASE‐BACKED OBLIGATIONS

“[Los Angeles] is well positioned to strengthen its strong credit profile given a resilient and growing tax base, a highly diverse economy, and gradually growing reserves. The city’s strong financial management has curtailed expense growth, including significant pension cost in the wake of the Great Recession; prudently positioned the city to grow reserves with an expanding economy; and ultimately reversed the four‐year budget outlook from growing deficits to a declining trend….”

WHERE ARE WE NOW?

• Employee costs continue to grow

• Pressure on restoring services increasing

• New litigation, including on power transfer

WHERE ARE WE NOW?Employee Costs 

$3,005 $3,347  $3,469  $3,618  $3,357  $3,384  $3,469  $3,619  $3,796  $3,985 

$942 $991  $969  $935 

$1,043  $991  $917 $932 

$1,071 $1,153 

$3,947 

$4,339  $4,438  $4,554  $4,400  $4,375  $4,386 $4,550 

$4,867 $5,138 

76% 77% 78%79%

76% 77%79% 80%

78% 78%

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

 $‐

 $1,000

 $2,000

 $3,000

 $4,000

 $5,000

 $6,000

2005‐06 2006‐07 2007‐08 2008‐09 2009‐10 2010‐11 2011‐12 2012‐13 2013‐14 2014‐15

Millions

Portion of General Fund Dedicated to Employee‐Related Costs(Adopted Budget)

Employee‐Related Costs Expenses Percent Dedicated to Employee Costs

WHERE ARE WE NOW?Average Cost Per Employee

$96,384 $104,703  $108,257 

$113,139 

$108,786 $118,900 

$124,724 $131,288  $135,477 

$144,452 8.6%

3.4%

4.5%

‐3.8%

9.3%

4.9% 5.3%

3.2%

6.6%

4.3%3.3% 3.5%

‐0.8% 1.2%

2.7%2.0%

1.1% 1.3%

‐6.0%

‐4.0%

‐2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

 $‐

 $20,000

 $40,000

 $60,000

 $80,000

 $100,000

 $120,000

 $140,000

 $160,000

2005‐06 2006‐07 2007‐08 2008‐09 2009‐10 2010‐11 2011‐12 2012‐13 2013‐14 2014‐15

Cost Per Employee: 2005‐2015(Includes all sworn and civilian costs including salaries, overtime, pensions, benefits, and workers' 

compensation.)

Total Cost Per Employee Percent Change CPI Change

WHERE ARE WE NOW?Drivers of Employee Costs

Cost Driver2005‐06 Cost per Employee

2014‐15 Cost Per Employee Total Increase 

Percent Increase

Sworn Salaries $  91,861 $110,302 $  18,442 20%

Sworn Pensions $  12,226 $  45,575 $  33,348 273%

Civilian Salaries $  56,882 $  75,869 $  18,987 33%

Civilian Pensions $  10,843 $  19,960 $    9,117 84%

CPI 20%

Table 1: Salary and Pension Cost Increases, 2005-06 to 2014-15

WHERE SHOULD WE GO?Responsible Fiscal Management

• Maintain as a policy objective moving toward the elimination of the structural deficit. 

$(1,479.5)

$(1,145.7)$(1,053.8)

$(353.3) $(405.0)

 $(1,600.0)

 $(1,400.0)

 $(1,200.0)

 $(1,000.0)

 $(800.0)

 $(600.0)

 $(400.0)

 $(200.0)

 $‐

FY 11 (2010‐11 to2013‐14)

FY 12 ( 2011‐12 to2014‐15)

FY 13 (2012‐13 to2015‐16)

FY 14 (2013‐14 to2016‐17)

FY 15 (2014‐15 to2017‐18)

Millions

Cumulative Four‐Year Deficit by Year of Outlook(Fiscal Years Included in Outlook)

• Establish priorities for the use of debt vs. cash.

$91.2  $83.0  $89.3 $102.7 

$128.0 

$68.2 

$28.7  $10.9  $49.7 $66.6  $67.8 

$28.1  $47.7  $46.1 

$55.6 $41.3 

$29.7 

$9.0 

$28.5  $49.6 

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

 $‐

 $20.0

 $40.0

 $60.0

 $80.0

 $100.0

 $120.0

 $140.0

 $160.0

 $180.0

2004‐05 2005‐06 2006‐07 2007‐08 2008‐09 2009‐10 2010‐11 2011‐12 2012‐13 2013‐14 2014‐15

Funding Approved for MICLA Financing Adopted Budgets 2005‐2015

Equipment Amount Real Property Amount Equipment Percent

WHERE SHOULD WE GO?Responsible Fiscal Management

• Transition to pay‐as‐you‐go for Police Department overtime.

$56.3$66.4

$75.6 $78.7 $80.9

$32.4

$3.2 $5.5 $4.0

$19.5

$73.0

0

200

400

600

800

1000

$0.0$10.0$20.0$30.0$40.0$50.0$60.0$70.0$80.0$90.0

2004‐05 2005‐06 2006‐07 2007‐08 2008‐09 2009‐10 2010‐11 2011‐12 2012‐13 2013‐14 2014‐15(Estimated)

Hou

rs

Millions

Sworn Overtime (OT) Amount Expended 2004 through 2015 (Non‐Reimbursable)

Allowable Sworn Overtime Bank Amount Expended

WHERE SHOULD WE GO?Responsible Fiscal Management

• Grow reserves (Reserve Fund plus Budget Stabilization Fund) to 10 percent of General Fund revenue.

• Resolve major litigation.

• Limit the backfill of federal and other grant reductions. 

WHERE SHOULD WE GO?Responsible Fiscal Management

• Revise the Capital Investment Policy to add a five‐year investment plan and to focus on infrastructure quality goals rather than spending targets.

• Continue to implement the recommendations in the 2014 Fire Department deployment study by PA Consulting and move toward civilianization and the development of a new Standards of Cover study. 

• Hire Detention Officers to staff jails so that Police Officers can return to the field; initiate a police workforce capacity study to expand these efforts throughout the Department’s operations.

• Building from the strategic advisor’s report on the City’s information technology (IT) system, develop a strategic plan to identify  specific projects in priority order and with defined funding requirements.

WHERE SHOULD WE GO?Focus on Core Services

Millennials (Age 14‐34), 

13%

Generation X (Age 35‐49), 37%

Baby Boomers 

(Age 50‐71), 49%

The Greatest 

Generation (Age 72+), 

1%

City Employees by Generation

Less than 10 Years of 

Service, 31%

10 to 19 Years of 

Service, 39%

20 to 24 Years of 

Service, 8%25+ Years of Service, 21%

City Employees by Years of Service

WHERE SHOULD WE GO?Sustainable Workforce

• Instruct the Personnel Department and the CAO to develop a comprehensive approach to succession planning Citywide.

• Eliminate managed hiring.

• Support the City’s diverse revenue system by maintaining the unrestricted nature of the General Fund. 

CRA and Property Tax

33%

Licenses, Permits, Fees, and Fines

16%

Utilities Users' Tax

12%Business Tax

9%

Sales Tax7%

Power Revenue Transfer

5%

Documentary Transfer Tax

4%

Transient Occupancy 

Tax4%

Parking Fines3%

Other7%

General Fund Revenues by Category: 2014‐15 Adopted Budget

$995.0 $1,109.3  $1,127.7  $1,159.7 

$22.7 

$58.8  $70.2  $48.0 $1,017.7 

$1,168.1  $1,197.9  $1,207.7 

 $‐

 $200.0

 $400.0

 $600.0

 $800.0

 $1,000.0

 $1,200.0

2011‐12 2012‐13 2013‐14 2014‐15(Adopted Budget)

Millions

Tax Increment Impact on 1% Property Tax

1% Property Tax CRA Tax Increment

WHERE SHOULD WE GO?Strengthen Revenues