Page 23 - 2020-21 Budget Summary

FINANCIAL POLICIES OF THE CITY OF LOS ANGELES

INTRODUCTION

The City of Los Angeles is committed to implementing and maintaining strong fiscal responsibility and
financial discipline and has incorporated these principles into a set of comprehensive City Financial
Policies.

There are six sections of the City’s Financial Policies, as follows:

• Fiscal
• Capital and Technology Improvement
• Pension and Retirement Funding
• General Fund Reserves
• General Fund Encumbrances
• Debt Management

In 2020, the City adopted revised versions of each of these policies, with the exception of the Debt Policy.
A proposed revision to the Debt Policy is currently pending before the City Council.

FISCAL POLICIES

The Fiscal Policies recognize that the City is supported by various financial resources and are intended to
ensure that the City functions within the limits of these financial resources. The City must maintain
balance between revenues and expenditures so that the public can realize the benefits of a strong and
stable local government. It is important to understand that these policies are to be applied over a period of
time that extends beyond the current-year appropriations. By law, the annual budget cannot exceed
available resources, defined as revenues generated in the current year added to balances carried forward
from prior years. Temporary operating deficits measured against current revenue can and do occur, but
they will not be tolerated as extended trends. The City cannot develop a legacy of operating deficits or a
legacy of using one-time revenues for ongoing expenditures and expect either to achieve structural
balance or to continue the delivery of high quality services to City residents. In order to achieve these
goals, the Fiscal Policies require the City to:

• Achieve structural balance both in the current fiscal year and on an ongoing basis so that projected
revenues cover the costs of anticipated services.
• Engage in performance budgeting to ensure that the City makes funding decisions to advance
strategic plans with measurable goals that are transparent and regularly evaluated.
• Make responsible choices about employee-related costs that the City both negotiates in consideration
of financial impacts and fully funds.
• Limit changes to the adopted budget.
• Protect unrestricted revenue sources, seek new and diverse revenues, and not reduce revenue
during the year without corresponding expenditure reductions.
• Assess fees levels and seek to recover the reasonable cost of a service where appropriate.
• Protect the integrity of special funds, establish a goal that special funds pay all related costs, and
encourage special fund administrators to establish reserves.
• Ensure transparency in financial decisions by publishing clear and accurate budget data, by reporting
on the City’s financial condition periodically, and by reporting on the financial impacts of proposals
• Sell surplus equipment and real property at market value.
• Make adequate investment to maintain real property and equipment.
• Set aside funding to pay for settlements and judgements and report on those payments.

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