With the city’s reserve fund dwindling dangerously, the Los Angeles City Council voted on Tuesday to extend a hiring freeze across all city departments except for police and fire.
The city is supposed to keep a reserve fund equal to 5% of the annual budget. But because of the nearly $260 million in legal settlements the city has paid out in the past four months, the fund has dropped to 4.1% – and another round of unexpected settlements is soon coming due.
If the reserve fund drops below 2.75% of the budget, it would trigger a financial crisis, forcing the city to stop all non-essential, non-emergency spending.
City Controller Kenneth Mejia has sounded the alarm, posting on X that the “city of L.A. is going broke” and slamming city officials for under-budgeting liability claims and allowing the LAPD to “routinely overspend.”
“The city is not going broke,” Mayor Karen Bass told KNX News’ Craig Fiegener.
But Councilmember Bob Blumenfield, chair of the budget committee, painted a less rosy picture of the situation, saying the city will need to borrow about $80 million to pay for legal settlements the city didn’t budget for.
“We're probably going to have to do what's called a judgment obligation bond to make sure that we don't dip down the reserve,” he said. “Generally speaking, it's not smart financing, it's not, you know – generally speaking, you should be only borrowing for infrastructure.”
The City Council also instructed City Administrative Officer Matt Szabo and the city attorney’s office to find ways to increase the reserve fund and curtail liability payouts.
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Szabo suggested the possibility of having liability payouts covered by the department responsible for the claim, which has been explored previously, but warned the policy could have “significant consequences” on basic services.
About $149 million of the liability payouts this fiscal year have been related to the LAPD.
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