CHICK BLOWS WHISTLE ON CITY SPENDING SPREE CONTROLLER: EMERGENCY AND RESERVE FUNDS WAY TOO LOW.

Byline: RICK ORLOV

Staff Writer

City Controller Laura Chick called Wednesday for major belt-tightening at City Hall, saying a year-end spending spree had drained reserve funds and left Los Angeles in precarious financial shape.

In her report on the fiscal year ended June 30, Chick said the city's contingency fund had been depleted; its emergency fund is $11 million short of the $122 million required under city policy; and its reserve fund is $90 million short of expectations.

With the city in only its sixth week of the new fiscal year, she said leaders have to cut back immediately on spending.

"This is a wake-up call that we've got to watch our expenditures and tighten our belts," Chick said. "We don't have the right amount of money in our reserve fund."

Mayor Antonio Villaraigosa embraced Chick's warning, firing off a letter directing the City Council and department heads to review spending and help restore cash reserves.

"As you are aware, maintaining a healthy reserve fund is absolutely critical to protect the financial health of the city and the essential services that we provide," Villaraigosa wrote.

For her part, Chick said she plans to divert incoming revenue to the reserve funds rather than allocate it to various departments for their operations.

Among the factors affecting the city's $7.8 billion budget, she said, was the decision to advance $25 million for the purchase of the Figueroa Plaza office building.

Even after that loan is repaid, she said, the contingency fund will still have a balance of only $8 million -- far less than she believes is wise.

Chick noted the City Council also allowed departments to retain more of the money that they didn't spend last year, shorting the current reserve fund by an estimated $34 million.

In addition, she said, the City Council has made long-term commitments totaling $60 million more than expected from its reserve fund, further limiting the amount available.

Chick urged the mayor and City Council to halt all spending from the unappropriated balance until the fund is restored and to order departments to repay any loans or advances to the reserve fund.

She also wants officials to determine whether future spending commitments can be deferred.

City Administrative Officer Karen Sisson said she concurs with Chick's analysis and is preparing a financial report for Villaraigosa and the council.

"We are concerned about the health of the reserve fund and will be looking at some items the council has said it wants to spend money on to see if they can be deferred," Sisson said.

"There are some things we are going to have to eliminate. We are trying to pare those down to give the council some options."

That could be bad news for the city's anti-gang operations, which council members had planned to expand using money from the city's unappropriated budget balance.

The council also had taken action to reduce the size of classes at the Los Angeles Police Academy to spread the hiring costs over the course of the year.

Aides to Villaraigosa said they would not allow any change in hiring; 280 police officers are expected to be added this year.

Sisson said she is not concerned about Chick holding on to any cash she receives and delaying its transfer to the budget.

"We are at the beginning of the budget year and should be able to adapt," Sisson said.

rick.orlov(at)dailynews.com

[phone]