As the city of Los Angeles faces serious financial headwinds exacerbated by January's wildfires, the City Controller Friday encouraged residents to "pay attention" as the mayor is set to release her proposed budget next month.
Earlier this week, City Administrative Officer Matt Szabo warned of a potential $400 million shortfall in fiscal year 2025-26 as a result of lower tax revenue, overspending in liability payouts and costs related to the fire emergencies.
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Additionally, the City Controller's Office released a report projecting year-end revenues will fall below $140 million of the adopted FY 2024-25 budget. Sales and business taxes combined are projected to be $92 million below budget.
Projections also showed revenues will fall short $320 million in FY 2025-26 as a result of stressors with federal trade, immigration policies and the impact of the fires to local taxes, among other challenges. General fund revenue is likely to decrease by $73 million, primarily due to a projected decrease of $198.5 million in grants.
"I want Angelenos to really pay attention as to what's in that budget -- where the money is going to be allocated, what positions are going to be eliminated or added -- so that they know when something happens and they're not surprised," City Controller Kenneth Mejia told CNS.
Mayor Karen Bass is expected to release her proposed FY 2025-26 budget in late April, followed by a period of revision by the L.A. City Council.
The budget must be approved by July 1, the start of the next fiscal year.
"This is the second year in a row that the city is going to be under budget when it comes to collecting revenues, specifically general fund revenues, and the second year in a row where we're overspending above what we budgeted," Mejia told CNS.
In a report published Feb. 28, the CAO identified $300.54 million in overspending in FY 2024-25, as well as $190.29 million in potential solutions and another $30.23 million in future actions that could further reduce the cost.
If approved, part of these solutions would authorize further use of the reserve fund, a pending transfer of $5.23 million for settlements and judgments. The fund is a "rainy day" account for emergencies, which has been reduced from a record $648 million two years ago to $263.54 million. City officials may need to declare a fiscal emergency if the reserve fund falls below 2.75%
City officials may consider a judicial obligation bond of $80 million to replenish the reserve fund and cover a portion of liability payouts.
"It just shows how dire the situation is for a city's finances," Mejia told CNS regarding the reserve fund.
Mejia has advocated for budgetary reforms such as a transition to a two-year budget cycle, the creation of a capital infrastructure plan, holding departments accountable for settlements, among other things.
In October 2024, Bass established a committee focused on capital infrastructure. Most recently, the City Council's Budget Committee advanced a motion to explore a two-year budget cycle, as well.
"I think we've been sounding the alarm ... I do feel that there are more people paying attention," Mejia added. "What we've seen is more interest from other electeds on our numbers."
Last year, in a bid to address a similar budget deficit, City Council and the mayor "saved" $250 million by cutting 1,700 vacant positions and implementing a hiring freeze. These policies will remain in place as the city aims to right-size the budget.
"I'm very concerned because even last year, so many departments had double digit vacancies," Mejia told CNS. "They were short staff from the get go, and it has just made it harder."
Officials are calling on departments to limit their spending as well.
"...What the city needs to do is just be upfront and transparent about that," Mejia added. "A lot of departments are really feeling it and I think Angelenos are feeling it too. When they see their trees not trimmed, the sidewalks not filled, and the animal shelters overcrowded."
Part of the reason for the multi-year deficit came as a result of new contracts with the unions representing Los Angeles Police Department officers and for civilian workers -- totaling $1 billion each.
City officials defended the LAPD contract by citing recruitment and retention needs. Mayor Bass made it a priority to bolster the department's rank- and-file, which the City Council supported as well. As of Feb. 25, sworn personnel stood at 8,778, civilian employees stood at 2,664 and reserve officers stood at 379.
The city is also dealing with overspending due to liability payouts. A majority of these settlements stem from LAPD negligence or abuse, as well as injuries caused by aging infrastructure e.g. sidewalks and street lights, and in some cases fallen tree limbs. The CAO previously reported $112 million in payouts, and most recently projected that by the end of FY 2024-25 that expense will increase to $320 million.
Another significant budgetary strain comes from increasing costs for outside counsel by the City Attorney's Office.
As elected officials consider ways to increase revenues, some options may lead to higher taxes, fees, and other costs for taxpayers. For example, City Council members are exploring a potential bond for the 2026 ballot. The bond could create a specific revenue stream for the Los Angeles Fire Department.
The conversation comes after the devastating January wildfires. Costs associated with the fire emergencies are nearly $300 million, and likely to rise -- city officials anticipate reimbursements from the state and Federal Emergency Management Agency.
Former Fire Chief Kristin Crowley, the United Firefighters of Los Angeles City, and Mejia raised awareness about a $17 million decrease in the department's operational budget, as well as the elimination of vacant positions.
City Council and Bass have vehemently denied LAFD's spending was decreased in FY 2024-25, pointing to more than $50 million increase due to a new contract with UFLAC.
Mejia reiterated that elected officials need to be transparent and have open conversations on how money is being spent -- and the implications for city services, or lack of.
"We try our best, but we also need other electeds to have that conversation with us," Mejia told CNS. "I get why the city would want to do bond measures and find specific funding for under-resourced areas in the city. It's just we need to be transparent about it. Where's the money going? Why do we need to do this?"
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