Los Angeles in Crisis: $1 Billion Deficit Looms

LOS ANGELES IS IN TROUBLE! The city is staring down a $1 BILLION deficit for the fiscal year 2025-26, and the situation is dire. City Administrative Officer Matt Szabo laid out the grim reality: tough financial decisions are on the horizon, and layoffs are "nearly inevitable." We're talking thousands of jobs on the line, folks. This is a crisis that demands immediate action and bold solutions.



The numbers don't lie. Szabo highlighted a $61 million starting gap, exacerbated by $315 million in lower-than-anticipated revenue from taxes, $100 million in liability payouts, $275 million needed to restore the reserve fund, $80 million related to solid waste fees, and $100 million to cover pensions for police and fire departments. The fiscal crisis is a perfect storm of rising costs and declining revenues, and the city is scrambling to find a lifeline.

Mayor Karen Bass is under the gun to present a strategy to close this gap by April 21. Her proposed budget will need to deliver "fundamental change" in how the city operates. But the question remains: will it be enough? The city has already dipped into its reserve fund, which is now at a dangerously low 3.22% of the general fund. If it drops below 2.75%, we're looking at a full-blown fiscal emergency.

The city is exploring all options to increase revenues, including hiking fees for public services. The solid waste fee, which has not been raised in years, is a likely target. Szabo estimated that the general fund will subsidize that program by $200 million, an increase of $80 million compared to FY 2024-25. This could generate additional revenue but may also increase the financial burden on taxpayers.

But the city isn't just looking to increase revenues; it's also considering cost-cutting measures. Pay raises for city employees, set to begin July 1, are expected to add an additional $250 million in costs. The City Council is mulling over the possibility of deferring these raises or making other concessions. This could save the city a significant amount of money in the short term, but it may also lead to labor unrest and potential future negotiations that might require additional concessions from the city.

The city is also working with the state Legislature on a bill to cap damages related to liability payouts, which have been a significant expense. Szabo attributed the fiscal crisis in part to rising legal payouts, which are expected to increase to $320 million by the end of FY 2024-25. Capping these damages could help reduce future costs but may also limit the city's ability to settle claims and lawsuits.

The city is in a tough spot, and the stakes are high. But with bold leadership and creative solutions, Los Angeles can weather this storm and emerge stronger than ever. The city needs to take action now, and the state needs to step up and provide the support Los Angeles needs to get back on track. This is a crisis that demands immediate attention, and the future of the city depends on it.