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BUDGET STATEMENT

GENERAL

The City of Los Angeles (City) was incorporated in 1850 under the provisions of a City Charter. The voters
of the City approved the current City Charter on June 8, 1999 and it became operative on July 1, 2000.
The voters have periodically amended the Charter since that time.

As Executive Officer, the Mayor supervises the administrative process of the City and works with the City
Council on matters relating to legislation, budget, and finance. As governing body of the City, the
15-member, full-time City Council enacts ordinances, levies taxes, approves utility rates, authorizes
contracts and public improvements, adopts zoning and other land use controls, and provides the
necessary resources for the budgetary departments and offices of the City. City Council action is subject
to the approval or veto of the Mayor. The City Council may override a Mayoral veto by a two-thirds vote.

The City provides a number of public services, including: police, fire, and paramedics; residential refuse
collection and disposal; wastewater collection and treatment; street maintenance and other public works
functions; enforcement of ordinances and statutes relating to building safety; public libraries; recreation
and parks; community development, housing, and aging services; planning; airports and the harbor; power
and water services; and the convention center.

BUDGET PROCESS

The City’s fiscal year is from July 1 through June 30. The Mayor releases a budget policy letter that
defines City objectives for the next fiscal year. This letter guides City departments, bureaus, and other
offices in preparing their annual budget requests. The Charter requires that departments submit budget
requests to the Mayor by January 1.

In conjunction with analysis by the Office of the City Administrative Officer (CAO) and each General
Manager, the Mayor reviews the budget requests of every City department, bureau, and office. By
March, the Mayor’s Office develops revenue projections with the assistance of the Office of Finance,
the CAO, and the Controller. The Charter requires that the Mayor present the Proposed Budget to the
City Council by April 20 of each year. When April 20 falls on a weekend or City holiday, the Mayor must
submit the Proposed Budget on the next business day.

A City Council committee examines the Proposed Budget in hearings with the Mayor’s Office, General
Managers, the CAO, the Chief Legislative Analyst, and staff. The committee then develops
recommendations on the Proposed Budget for consideration by the full City Council. The Charter
requires the City Council, by majority vote, to adopt or modify the Proposed Budget by June 1. Once the
City Council has acted, the Mayor has five working days to approve or veto any changes that the City
Council made to the Proposed Budget. Once the Mayor has acted, the City Council has five working
days to sustain or override by two-thirds vote the Mayor’s actions. The result of this entire process is
the adopted budget for the next fiscal year.

BUDGET BASIS

The City prepares the annual budget on a modified cash basis of accounting. It recognizes revenues
when the City receives cash, and appropriations include both cash payments and encumbrances for
purchase orders and contractual services. The City will pay for encumbered appropriations that it has
not paid at the end of the current year in a subsequent year. The City does not prepare the budget
based on Generally Accepted Accounting Principles (GAAP) classifications. The primary differences
between the City’s budget and GAAP are that the City budget recognizes revenues on a cash rather
that accrual basis and does not account for the depreciation of fixed assets or certain contingencies
such as compensated absences for accrued vacation and sick pay. The City’s budget and GAAP also

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