Financial problems in Los Angeles amid a full-scale crisis Wednesday, with the city’s top budget officials declaring that next year’s shortfall is now well below $1 billion, making layoffs “almost inevitable”.
City Administrative Official Matt Szabo suggested that the city council focus on cost cuts, including potentially reducing the size of the workforce, to bring the budget to a 2025-26 balance.
Szabo attributed the city’s financial distress in a speech to the council on Wednesday, partly because of spending that has been joining legal spending over the past few years. Tax revenues are much weaker than expected and are expected to soften further in the budget year starting July 1.
An additional $250 million is expected to be paid for city employees who plan to take effect in future budget years. Most importantly, the city needs to put hundreds of millions of dollars into its reserve fund, which has been exhausted in recent months to balance the budget this year, Szabo said.
“The severity of the decline in revenue and the cost increase in costs created a budget gap that almost made layoffs almost inevitable,” he said. “We’re not looking at dozens or even hundreds of layoffs, but thousands.”
Mayor Karen Bass must present her strategy to close the $1 billion gap by April 21, a legal deadline for her release of her proposed 2025-26 budget. At this point, neither she nor the Council were willing to wait.
“Due to the severity of the gap we are facing, the mayor has made it clear that we need to take action now,” Szabo told the council.
Minutes after Szabo’s speech, council members worked behind closed doors and carefully looked at contracts with various union public employees, including police officers, firefighters, garbage truck drivers, librarians, park maintenance staff, and many others.
Councillor Katy Yaroslavsky, head of the budget committee, said the council would need to study the possibility of requiring unions representing city workers to postpone scheduled pay raises or make other offers.
“I think everything has to be on the table,” she said in an interview.
Representatives from several city unions, including police, firefighters and health workers, declined to comment or did not respond immediately.
In a statement issued during council deliberations, Bass said her upcoming budget would seek “fundamental changes” to city operations.
“We must not surrender. We must think there is no plan or department too precious to consider reduction or reorganization,” she said in a letter to Szabo.
Bass said in her letter that New York City’s budget dilemma was at least partly driven by expensive legal solutions, emergency costs associated with the Palisades fire and “declined national economic trends” from unpredictable federal fiscal policy to “volatile stock markets.”
Four years ago, after the pandemic broke out, city leaders successfully convinced public employees to give up Book a salary increasedelaying them until President Biden provides a relief package. During that crisis, the Council also signed an early retirement plan that granted more than 1,000 employees Up to $80,000 Leave work.
Council members cannot unilaterally stop pay raises that have become part of the approved contract. The City will need to negotiate any refunds, which may require concessions.
Over the past two years, Beth and the Council signed a series of union raises and increased benefits in terms of pay raises – First Police, then civilian city workers, and then firefighters.
These pay raises largely bring workforce peace to town hall, providing elected officials with the prospect of a stable relationship until after 2026, Bass and six council members will be re-elected. But they already have a price.
To free up this year’s salary, the Council voted to Eliminate approximately 1,700 vacant locations. Even if these reductions are reduced, the salary increase planned for 2025-26 is expected to exceed the budget.
Earlier this week, City Council President Marqueece Harris-Dawson and Yaroslavsky, who heads the Council’s Budget Committee, issued a letter illuminating their 10 priorities for the upcoming budget review. These include retaining emergency reserves, allocating enough funds to cover legal expenditures, and pursuing “national relief to address budget shortages.”
Harris-Dawson and Yaroslavsky also called on city officials to identify strategies to generate more income, such as the hiking costs for public services.
One possible goal is the garbage fee charged on single-family homes and two to four units of single-family homes and buildings. Szabo said the city will soon “subsidize” the cost of garbage services $200 million a year, giving homeowners and some landlords a break.
City controller Kenneth Mejia made his grim forecast Tuesday, warning the Council’s budget committee that it expects revenues for the upcoming fiscal year to be well below forecasts. He noted that the Council’s efforts to address the budget gap this year are significantly reducing reserves, reducing it to 3.22% of the general fund budget paid for core services.
The city’s financial policy requires reserves not less than 5%.
Mejia said the budget dilemma was not caused by an external crisis, but a decision made at the city hall.
“We have no recession in common or global recession,” Megia said. “It’s something that happens from within.”
Szabo said the city’s financial situation was also burned by external factors. He said federal action on tariffs and its planned crackdown on immigration could increase inflation in California, which could weaken tax revenues.
Additionally, property burned by the Palisade Fire may be reassessed to reflect a reduction in its value – which will reduce property tax revenue.
