L.A. in serious financial trouble due, in part, to costly legal settlements

The City of Los Angeles is supposed to maintain a healthy reserve fund, which is meant to be 5% of its $13 billion budget but is currently at 4.1% and dropping.

There are many reasons for the low balance, one of which is that tax revenue is down. The city is also on the hook for numerous costly legal settlements (more than $70 million in liability settlements), that were not planned for when L.A. city lawmakers came up with the current budget.

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If the reserve hits 2.75% of the overall budget, it will trigger a citywide financial crisis.

Los Angeles council member and budget committee chair Bob Blumenfield tells KNX News' Craig Fiegener about what's ahead if that happens.

"We are in a very deep financial problem situation here in the city of Los Angeles. We are bottoming out on our reserves," Blumenfield said. "If you actually started looking at the financial liabilities that are coming up, like just on our lawsuits, it's actually going to dip below [4.1%]."

He said he is hopeful the council will be able to take corrective action before the city hits the 'emergency zone.'

The city can take steps to stop the financial bleeding, such as issuing bonds or borrowing money to pay legal settlements. These measures would put the city in debt but keep it above the 2.75% danger zone.

Council member Monica Rodriguez , who's on the budget committee, said the committee may not have been given the city's whole financial picture when approving the budget, and she's not happy about it.

"The idea that we're four months into the fiscal year and having this conversation should concern everybody. And that's what's really problematic for me. We were told one thing and then came to find out that we actually started $50 million further behind than what we were originally projecting," Rodriguez said.

Earlier this week, Rodriguez filed a motion asking for a report on all the dire financial news awaiting Los Angeles that council members may still need to be made aware of.

If the reserve fund dips to 2.75%, all non-essential, non-emergency spending in Los Angeles will stop.

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