According to CNET, LA would become one of the largest government agencies, outside the District of Columbia, to make the switch to using hosted Google email and application services.
However, security concerns over storing information in the cloud did factor into the process and have yet to be 100% aleviated. Apparently the deal hinges around an agreement with Computer Sciences Corp, a contractor who would need to agree to pay a penalty should there be a security breach.
If the deal does go through it would be quite the coup for Google and their Going Google campaign. With both the US Government supporting the initiative and the city of Los Angeles joining the Google team, Google is building up an arsenal of large and impressive customers that should make it easier to attract more top dollar enterprise clients.