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

Local officials are feeding their rainy-day funds, hoping to ride out the next slump

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

Los Angeles officials are socking away money for the next recession. ... 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. ... “It was an extraordinarily dark time in the city and we are resolved never to go back,” Mr. Szabo said, adding that now is the time to think about the next downturn. “Those of us who’ve lived through the recession understand that we are overdue.”

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%. ... “Every year that the recovery lasts, it just makes the pressure around preparedness for a downturn that much more urgent,” said Mary Murphy, who studies rainy-day funds at the Pew Charitable Trusts.

Pressured by declining revenue, local governments around the U.S. shed a half-million jobs in the last recession through layoffs and attrition, according to Pew. Everything from public safety to trash collection to school administration was on the chopping block. Some cities raised taxes and fees, too, but most cut spending to make ends meet. ... States commonly use rainy-day funds to smooth the jolt from recessions, which can come quickly when sales- and income-tax revenue plummets. Thirty-one states boosted rainy-day fund balances in the last fiscal year, and 26 have projected increases this year, according to the National Association of State Budget Officers.
....

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. ... “I don’t think you could talk to any big-city finance official and have them say they’re not worried,” Philadelphia’s finance director Rob Dubow said.

Write to Scott Calvert at scott.calvert@wsj.com and Jon Kamp at jon.kamp@wsj.com