Los Angeles is on the brink of a fiscal emergency, with its finances in “dire” condition and no money to cover unplanned expenses after a series of lawsuit payments blew a hole in the city's already tight budget.
So if you were hoping this would be the year City Hall, in preparation for the 2028 Olympics, gets to work smoothing broken sidewalks, fixing burned-out streetlights, trimming trees or any other public investment to make the city more Enjoyable for residents and visitors alike, don't hold your breath.
Los Angeles is bankrupt. Mayor Karen Bass and the City Council must get serious about developing a plan to stabilize the city's finances this year and beyond.
It won't be an easy task. In the first three months of the fiscal year that began July 1 alone, the city has to pay $258 million in liability costs. The largest category of payments (40%) is related to police department negligence or use of force. About one-third of payments involve personal injury cases involving dangerous conditions, such as broken sidewalks and streetlights. About 15% are labor cases involving harassment and other working conditions.
While liability spending is the immediate cause of the dire financial picture, the budget adopted by Bass and the council was already overburdened in large part due to costly raises for police officers and civilian employees approved in the last fiscal year.
The city began this fiscal year violating its own financial policy of maintaining a reserve fund (where cash is held to cover emergency or unforeseen expenses) of at least 5% of the $8 billion general fund budget. (The goal is 10%). The reserve fund was 4.12% on July 1, according to municipal comptroller Kenneth Mejía. If all liability costs are paid with reserves, the fund would fall to 2.8%. And if the fund falls below 2.75%, the council will have to declare a fiscal emergency.
To avoid it, city leaders are considering extreme measures, including borrowing money to pay off some of the judgments and settlements, which means adding interest to the initial cost. The city is also likely to continue slowing or stopping the hiring of some municipal employees, further reducing basic services such as street repair, park maintenance and code enforcement.
These measures may restore the reserve fund, but they do not address the underlying problem: the city is not living within its means. Los Angeles leaders approve employee raises the city can't afford and then cut staff and services while waiting for an economic boom to boost tax revenue.
It's a feast-or-famine pattern that occurs over and over again, making it difficult for the city to make long-term investments such as maintaining public infrastructure, adopting technology to modernize service delivery, and even providing management and staff training. . These are investments that could reduce rising lawsuit payouts and possibly prevent personal injury lawsuits for broken sidewalks and dangerous street conditions and employee lawsuits for harassment and retaliation.
To fix Los Angeles' budget, city leaders must transition to a multi-year budget in which spending commitments are planned in advance rather than the current annual struggle with priorities and programs that change from year to year.
The city also needs to be far away more transparent on employment arrangements for employees, including an independent analysis of impacts.
Contracts are negotiated in secret, ratified by union members and quickly approved by elected officials, many of whom rely on unions for their campaign contributions. Last year there was little discussion about how providing $1 billion in police raises over four years would affect the budget and how other employee unions would expect similarly large raises. There was also no public discussion of the agreement to allow park rangers and some police officers to convert their good pensions into great pensions at a one-time cost of $23 million to the general fund; Voters will decide Nov. 5 whether that deal moves forward with Charter Amendment FF.
And city leaders have to decide what basic services Los Angeles can afford to provide (or should provide). Public safety is an essential responsibility of local government, but what tasks can civilian employees perform most efficiently so sworn police officers can focus on responding to and solving crimes?
Alleviating homelessness is a top priority, but should the city continue to pay for social support, mental health and treatment services that are the responsibility of the county government? What programs and services should be cut because Los Angeles cannot afford to do everything for everyone? And what basic municipal responsibilities continue to be reduced because the city is not being sensible in its spending decisions?
On Wednesday, Bass announced a steering committee of public works department managers to better plan, coordinate and expedite the construction and maintenance of streets, sidewalks, parks and other public infrastructure. Having a long-term capital infrastructure plan is certainly better than the status quo where basic maintenance goes up and down based on the city's budget and political priorities.
But committees and efficiencies are not going to solve Los Angeles' financial problems. The mayor and City Council will need to make difficult decisions over several years to put the city on stable financial footing.
