Los Angeles Faces Financial Headwinds: What to Expect in the Upcoming Budget
As Los Angeles grapples with significant financial challenges, exacerbated by January’s wildfires, City Controller Kenneth Mejia has urged residents to closely monitor the upcoming budget proposal. The City Controller’s Office has released a report projecting that year-end revenues will fall short by $140 million of the adopted FY 2024-25 budget. Sales and business taxes are anticipated to be $92 million below the budgeted amount.
Projected Financial Shortfalls
Projections indicate that revenues will fall short by $320 million in FY 2025-26. This deficit is attributed to various stressors, including federal trade and immigration policies, the impact of wildfires on local taxes, and other challenges. General fund revenue is expected to decrease by $73 million, primarily due to a projected decrease of $198.5 million in grants.
Transparency and Accountability
Mejia emphasized the importance of transparency and accountability in the budget process. He encouraged Angelenos to pay close attention to where the money is allocated and how positions are managed. “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,” 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.
Overspending and Reserve Fund
This is the second consecutive year that the city is expected to be under budget in terms of collecting general fund revenues and overspending above what was budgeted. In a report published Feb. 28, the CAO identified $300.54 million in overspending in FY 2024-25, along with $190.29 million in potential solutions and another $30.23 million in future actions that could further reduce costs.
The reserve fund, a “rainy day” account for emergencies, has been significantly 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%. To replenish the reserve fund and cover liability payouts, officials may consider a judicial obligation bond of $80 million.
Budgetary Reforms and Capital Infrastructure
Mejia has advocated for several budgetary reforms, including a transition to a two-year budget cycle, the creation of a capital infrastructure plan, and holding departments accountable for settlements. In October 2024, Mayor 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.
Staffing and Spending Cuts
Last year, the City Council and the mayor addressed a similar budget deficit 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. Mejia expressed concern about the high number of vacancies in various departments, which has made it harder to provide services.
Officials are calling on departments to limit their spending. Mejia emphasized the need for transparency, stating, “What the city needs to do is just be upfront and transparent about that. 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.”
Union Contracts and Budgetary Strain
Part of the multi-year deficit is due to new contracts with unions representing Los Angeles Police Department officers and civilian workers, totaling $1 billion each. City officials defended the LAPD contract by citing recruitment and retention needs. As of Feb. 25, sworn personnel stood at 8,778, civilian employees at 2,664, and reserve officers at 379.
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.
Potential Bond for Fire Department
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. This conversation comes after the devastating January wildfires, which have cost nearly $300 million and are 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 that LAFD’s spending was decreased in FY 2024-25, pointing to a more than $50 million increase due to a new contract with UFLAC.
Transparency and Open Conversations
Mejia reiterated the need for elected officials to be transparent and have open conversations about how money is being spent and the implications for city services. “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?”
Key Financial Projections for Los Angeles
| Fiscal Year | Projected Revenue Shortfall | General Fund Revenue Decrease | Reserve Fund |
|---|---|---|---|
| FY 2024-25 | $140 million | $73 million | $263.54 million |
| FY 2025-26 | $320 million | $73 million | $263.54 million |
FAQ Section
What is the current financial situation in Los Angeles?
The city is facing significant financial challenges, with projected revenue shortfalls of $140 million for FY 2024-25 and $320 million for FY 2025-26. The general fund revenue is expected to decrease by $73 million.
What steps is the city taking to address the budget deficit?
The city has implemented measures such as cutting 1,700 vacant positions and implementing a hiring freeze. Officials are also exploring a potential bond for the 2026 ballot to create a specific revenue stream for the Los Angeles Fire Department.
How is the reserve fund being utilized?
The reserve fund, which has been reduced from $648 million to $263.54 million, is being used for emergencies and may be further depleted if a fiscal emergency is declared. Officials are considering a judicial obligation bond of $80 million to replenish the fund.
What are the implications for city services?
With the budget cuts and staffing reductions, city services such as tree trimming, sidewalk maintenance, and animal shelters are likely to be affected. Mejia has emphasized the need for transparency and accountability in how the budget is managed.
Did You Know?
The reserve fund in Los Angeles, often referred to as the "rainy day" account, has been significantly depleted over the past two years. This fund is crucial for handling emergencies and unexpected financial strains, such as those caused by natural disasters.
Pro Tips for Staying Informed
- Attend Budget Meetings: Participate in public meetings and hearings to stay informed about budget decisions.
- Engage with Elected Officials: Reach out to your local representatives to voice your concerns and ask questions.
- Follow Financial Reports: Regularly review financial reports and updates from the City Controller’s Office.
Reader Question
How do you think the city can better manage its financial challenges while ensuring essential services are maintained?
Call to Action
Share your thoughts and concerns in the comments below. Stay tuned for more updates on Los Angeles’ financial situation and how it impacts your community.