Report 97019 Summary - February 1998

Los Angeles County: Although the County Closed 1996-97 With a Surplus, 1997-98 Still Presents a Few Fiscal Pressures

Results in Brief

Los Angeles County (county), one of the original 27 counties in the State, is responsible for providing public welfare, health, and public safety services to about 9.4 million residents. The California Government Code, Section 29088, stipulates that the county must approve a balanced budget by August 30 each year, but it can extend the deadline to October 2.

The first Bureau of State Audits report, issued in March 1996, described the county's fiscal crisis and how it planned to balance its budget for fiscal year 1995-96. Our November 1996 report focused on the outcome of the budgetary process for the 1995-96 fiscal year and the county's plans for balancing its fiscal year 1996-97 budget. Our second report also suggested ways the Los Angeles County Sheriff's Department could reduce costs. In March 1997, we reported on the status of the fiscal issues described in our previous reports and reviewed the status of the county's budget for fiscal year 1996-97.

In this fourth audit, we reviewed what the county accomplished in previous years to balance its budget and to address the major issues of its 1997-98 fiscal year budget. The county actually ended its 1996-97 fiscal year with a surplus, but it continues to struggle with long-term budgetary problems that remain unsolved. Specifically, we noted the following conditions:

• At the end of fiscal year 1996-97, the county had a budget surplus of $273.8 million, including $121.2 million in its general fund.

• When the county adopted its 1997-98 budget, it did not anticipate granting any salary increases, but in the last half of 1997 it approved a 10 percent salary increase for a term of three years for four budget units. The first increases went into effect in November 1997. The county plans to use a portion of its projected 1997-98 budgetary savings to pay for increased salary costs during the fiscal year.

• The county has taken steps to better monitor the amount of employee overtime, but these efforts have yet to show significant positive results. In spite of increasing its overtime budget each of the last three years, the county has exceeded this by approximately $60 million for each of those years. We estimate that it will exceed its overtime budget for 1997-98 by $67 million.

• The county will use approximately $300 million of surplus investment earnings from the Los Angeles County Employees' Retirement Association to help cover its 1997-98 pension obligation. It can continue to use surplus investment earnings, $1.2 billion as of June 30, 1997, to fund pension obligations in future fiscal years.

• County hospitals that have a disproportionate share of indigent patients may receive additional federal funding for up to two years due to federal provisions enacted in 1997. The county estimates that this additional funding could amount to approximately $210 million in fiscal year 1997-98. An equivalent amount of additional funding is forecast by the county for 1998-99, pending state action.

Recommendations

To achieve balanced budgets both currently and in the future, the county should take the following steps:

• Continue to closely monitor each department's overall budget and the major components within it to help ensure that each department stays within its budget, which should help ensure that the county continues to meet its overall budget.

• Better manage employee overtime, closely monitor each department's actual expenditures against its budget for overtime, and resolve vacancy issues and other factors that could help reduce overtime. Also, remind department management of their responsibility to pre-authorize overtime to ensure it is absolutely essential to maintain county services.

Agency Comments

In general, the county agrees with the recommendations that we make in this report. Moreover, it plans to prepare a more realistic overtime budget for fiscal year 1998-99 and it believes filling long-standing staff vacancies will enable it to reduce overtime.

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