Los Angeles Faces Critical Financial Strain, $80M Loan
CITY — May 7, 2024 —
Los Angeles is facing significant financial difficulties, prompting a potential $80 million loan to cover budget shortfalls.Teh city is looking to borrow money to address legal payouts and overspending by different departments. With rising concerns from city representatives like Controller Kenneth Mejia, the primary focus is the accruing interest on the loan. For a more detailed overview of the situation,keep reading.
Los Angeles Faces Financial Strain, Considers $80 Million Loan
Los Angeles is grappling with critically important financial challenges, prompting city officials to consider borrowing $80 million to address budget shortfalls. City departments have collectively overspent by at least $215 million for the fiscal year that began July 1, according to a recent financial analysis.
The Proposed Solution: A Judgment Obligation Bond
During a recent city council meeting, officials, including City Administrative Officer Matt Szabo, proposed a “judgment obligation bond” to cover the costs of lawsuits against the city. This $80 million loan aims to address a growing backlog of legal payouts.
These legal matters encompass a range of issues, including:
- Misconduct by Los Angeles Police Department (LAPD) officers
- Discrimination claims filed by city workers
- Accidents resulting from deteriorating infrastructure
The Cost of Borrowing: Interest Concerns
While borrowing is common for infrastructure projects, using loans to cover ongoing legal costs raises concerns, primarily due to the accumulation of interest. An $80 million loan could accrue as much as $20 million in interest at current rates. This interest payment is roughly equivalent to the budget of an entire city department.
The proposed bond, carrying an expected interest rate of 2.73%, is currently awaiting approval.
City Representatives Voice Concerns
Several city representatives have expressed reservations about the potential risks associated with accumulating interest on such a substantial loan. City Controller Kenneth Mejia has been especially vocal, warning that the city is going broke.
With no plan to hold departments accountable for their liabilities or fund underinvested departments (e.g. Public Works, Animal Services, etc.), this is short-sighted and irresponsible.
Kenneth Mejia, Los Angeles City Controller, via X
Mejia has used his X account to highlight the city’s financial woes. He noted that Los Angeles has already spent $141 million on liability payouts in the first four months of the new fiscal year.
The Proposed Financial Maneuver
If approved, the city plans to use its reserve fund to cover the legal charges initially. The $80 million loan would than be used to replenish the reserve fund.
