Los Angeles is teetering on the edge of a fiscal emergency, with its finances in “dire” condition and no money to cover unplanned expenses after a series of lawsuit payouts blew a hole in the city’s already-tight budget.
So if you were hoping this would be the year that City Hall, in preparation for the 2028 Olympics, would get moving on smoothing busted sidewalks, fixing burned out street lights, trimming trees or any other public investments to make the city nicer for residents and visitors alike — don’t hold your breath.
L.A. is broke. Mayor Karen Bass and the City Council have to get serious about developing a plan to stabilize the city’s finances this year and for the future.
It won’t be an easy task. In just the first three months of the fiscal year that started July 1, the city is on the hook for $258 million in liability costs. The largest category of payouts — 40% — is related to police department negligence or use of force. About a third of the payouts involve personal injury cases from dangerous conditions, such as broken sidewalks and streetlights. Some 15% are employment cases involving harassment and other workplace conditions.
While the liability expenses are the immediate cause of the dire financial picture, the budget adopted by Bass and the council was already overstretched in large part because of expensive raises for police officers and civilian employees approved in the last fiscal year.
The city started off this fiscal year in violation of its own financial policy to maintain a reserve fund — where cash is stashed 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 City Controller Kenneth Mejia. If all of the liability costs are paid from reserves, the fund would drop to 2.8%. And if the fund drops below 2.75%, the council is required to declare a fiscal emergency.
To prevent that, 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 some city employee hiring, which further reduces basic services such as street repairs, park maintenance and code enforcement.
These measures may restore the reserve fund but they don’t address the underlying problem: The city is not living within its means. L.A. leaders approve employee raises the city can’t afford and then cut staffing and services while hoping for an economic boom to lift tax revenue.
It’s a feast-or-famine pattern that happens over and over, making it harder for the city to follow through on long-term investments, such as maintaining public infrastructure, adopting technology to modernize service delivery and even providing staff and managerial training. These are investments that could reduce the mounting lawsuit payouts, and possibly prevent personal injury lawsuits from broken sidewalks and dangerous street conditions and employee lawsuits over harassment and retaliation.
To fix L.A.’s budget, city leaders need to transition to multiyear budgeting in which spending commitments are planned in advance rather than the current annual scramble with priorities and programs changing from year to year.
The city also needs to be far more transparent about employee labor deals, including an independent analysis of the impacts.
Contracts are negotiated in secret, ratified by union members and quickly rubber-stamped by elected officials, many of whom rely on labor unions for campaign contributions. There was little discussion last year of how providing $1 billion in police raises over four years would affect the budget and how other employee unions would expect similarly large increases. Nor was there public discussion on the agreement to let park rangers and some police officers turn their good pensions into great pensions at a one-time cost of $23 million to the general fund; voters will decide on Nov. 5 if that deal goes forward with Charter Amendment FF.
And city leaders have to decide what are the core services that L.A. can afford to provide — or should provide. Public safety is an essential responsibility of local government, but what tasks can civilian employees do more efficiently so sworn police officers can focus on responding to and resolving crimes?
Easing 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 county government? What programs and services should be cut because L.A. cannot afford to do everything for everybody? And what basic municipal responsibilities keep getting reduced because the city isn’t being judicious in its spending decisions?
On Wednesday, Bass announced a steering committee of public works’ department managers to better plan, coordinate and streamline the construction and upkeep of the streets, sidewalks, parks and other public infrastructure. Having a long-term capital infrastructure plan is certainly better than the status quo in which basic maintenance rises and falls depending on the city budget and political priorities.
But committees and efficiencies are not going to fix L.A.’s financial woes. It will take the mayor and the City Council making hard choices over several years to get the city on stable financial footing.