Los Angeles and Other Cities Stash Money to Prepare for a Recession

[Pedestrian]

By Scott Calvert and Jon Kamp
Jan. 24, 2019 11:00 a.m. ET

The nation’s second-largest city has set aside close to $500 million across several funds to help weather emergencies and financial shocks, said Matt Szabo, Mayor Eric Garcetti’s top budget adviser. It had about $192 million in reserves before the last recession, which officially lasted from December 2007 to June 2009. It wasn’t enough: police overtime, fire service and street repairs took a hit, among other city services, Mr. Szabo said . . . .

JPMorgan Chase & Co. gives about a 40% chance for a recession in the next 12 months, up from about 33% last fall. S&P Global Ratings, which says some cities are still struggling to rebuild reserves from the last downturn, recently put recession odds for this year at 15% to 20% . . . .

Denver’s policy has been to keep reserves equal to between 10% and 15% of its annual general fund. During the last recession, the city delayed recruit classes for the police and fire departments, put off technology purchases and closed a motor-vehicle department branch. But officials also drew down its reserve by $62 million to soften the blow. The city expects to end 2019 with about $221 million in reserve.

In Las Vegas, city officials are holding more than 50 jobs open to save $6.4 million, out of concerns that the next downturn would only mean cutting those positions. It is also building up reserves, which recently stood at $132 million, 55% more money than it had set aside before the last recession . . . .

Cleveland has plumped its rainy-day fund to about $30 million, after adding $12 million since 2017. Even so, finance director Sharon Dumas told the City Council last month she thinks the city needs far more—roughly $160 million—to cover three months of general-fund costs.

In Philadelphia, officials haven’t put a dime in a rainy-day fund created in 2011, instead focusing on continuing priorities like shoring up its pension fund. But the current administration said it is committed to stashing at least $20 million there in the next fiscal year, starting in July, thanks in part to a record-high $368 million budget surplus. Even so, officials said they would need a $750 million surplus to hit the GFOA’s target . . . .

https://www.wsj.com/articles/los-ang...s&page=1&pos=9

As of the end of the 2017 fiscal year, San Francisco had a total of $450 million reserved in 3 different pots, a "Budget Stabilization Reserve", a "Rainy Day Reserve" and a "Rainy Day One Time Reserve".

[BrownTown]

Any sane government entity should have been running budget surpluses the last few years since the economy was doing to well in anticipation of a future recession. But of course the feds and most states are instead spending like drunken sailors. It's just insane to be running a deficit at this point in the cycle. WTF are we going to do when the times get tough? Be like the silly grasshopper in the old fable I guess.

[tablemtn]

Any sane government entity should have been running budget surpluses the last few years since the economy was doing to well in anticipation of a future recession.

Normally yes. But it's worth remembering that the deficit spending also, by definition, drove UP the rate of GDP growth. That's because the simple version of the GDP formula is "C + I + G + (X – M)", where "G" literally means "government spending." That includes deficit spending. It's an open question whether there would have been much GDP "growth" at all without all that accumulated government debt.

I think the hope was that the debt could act as a sort of stimulus that would spark a more broadly-based private sector GDP expansion, but the results are underwhelming.

[BrownTown]

Originally Posted by tablemtn

Normally yes. But it's worth remembering that the deficit spending also, by definition, drove UP the rate of GDP growth. That's because the simple version of the GDP formula is "C + I + G + (X – M)", where "G" literally means "government spending." That includes deficit spending. It's an open question whether there would have been much GDP "growth" at all without all that accumulated government debt.

I think the hope was that the debt could act as a sort of stimulus that would spark a more broadly-based private sector GDP expansion, but the results are underwhelming.

Yes, that's the HOPE, but in reality it's just robbing peter to pay paul. Stimulus spending like that can work if the economy is doing really poorly and you're bringing people out of unemployment and into the labor market, but if unemployment is already <4% it doesn't really make sense.

[Sun Belt]

Drop in the bucket and when tech decides to take a dump?

Meanwhile, Los Angeles is considering a congestion relief tax, tax per mile and taxes on certain city zones. One proposal is to tax people entering downtown L.A. to raise about $12 billion

There's another vacancy tax being talked about as well. This would tax empty store fronts. Yeah that'll work! That'll make retail move in.

[Pedestrian]

Originally Posted by Sun Belt

Drop in the bucket and when tech decides to take a dump?

Meanwhile, Los Angeles is considering a congestion relief tax, tax per mile and taxes on certain city zones. One proposal is to tax people entering downtown L.A. to raise about $12 billion

There's another vacancy tax being talked about as well. This would tax empty store fronts. Yeah that'll work! That'll make retail move in.

San Francisco is considering—and my guess is will pass—a vacancy tax also. The idea is to incentivize landlords who are demanding excessive rents to lower those rents to what tenants can actually afford or pay the tax. It may work to some extent. It won’t fill every empty storefront but it may fill some of them with lower margin businesses like restaurants. I’m equivocal about it.