Page 3 - FY 2022-23 Supporting Information

CITY OF LOS ANGELES

Matthew W. Szabo CALIFORNIA ASSISTANT
CITY ADMINISTRATIVE OFFICERS
CITY ADMINISTRATIVE OFFICER
PATRICIA J. HUBER
MALAIKA BILLUPS
BEN CEJA
YOLANDA CHAVEZ

ERIC GARCETTI
MAYOR

Honorable Members of the City Council:

Over the last two years, the COVID 19 pandemic has challenged every aspect of
the City’s operations and introduced a level of financial uncertainty and unseen since the
Great Recession. Nonetheless, our resolve and resiliency, combined with federal support
have proven effective. The Proposed 2022-23 Budget represents our return to a more
steady state. Moreover, the 2022-23 Proposed Budget continues to invest in our
communities most impacted by the pandemic with a heighted awareness and commitment
to incorporate equity, diversity, and inclusion in how we deliver service.

The 2022-23 Proposed Budget recognizes that the COVID-19 pandemic will
continue to dictate many facets of our lives, although in different ways than before. In a
new phase of the pandemic, the negative economic impacts from business closures and
high unemployment have given way to negative impacts caused by an overheating
national economy. While the robust recovery we have experienced has helped bring the
City’s revenues back to pre-pandemic levels, surging inflation is now a leading concern for
households and the City alike. The Bureau of Labor Statistics reported on April 12 that the
all items consumer price index rose 8.5 percent for the 12 months ending in March, which
was the largest 12-month increase since the period ending in December 1981. Inflation
has caused immediate increases to our costs – leading with petroleum and impacting other
commodities, and construction material and labor costs of our capital programs.

Complicating matters, the primary tool used by the Federal Reserve to combat
inflation is to raise interest rates. As a large issuer of debt to finance capital projects and
purchase equipment, higher interest rates mean higher cost for the City. However, perhaps
the greater risk from inflation and raising interest rates to temper demand, is the potential
impact such an action will have on the labor market and our overall economic outlook,
including the City’s projected growth for 2022-23. We project that the Proposed 2022-23
Budget will experience $435 million, or 8.8 percent, growth in our economically sensitive
revenues. The Four Year Outlook projects structural balance based on revenues meeting
historical average growth. Should the Federal Reserve continue to raise interest rates to
respond to inflation, the City may be faced with slowing revenue growth and difficult
spending decisions. Of particular concern is that historically, Federal Reserve actions to
significantly stem inflation have resulted in rising unemployment, and in several cases, a
recession.

AN EQUAL EMPLOYMENT OPPORTUNITY EMPLOYER
200 North Main Street, Suite 1500, Los Angeles, CA 90012-4137 cao.lacity.org (213) 473-7500