LA Faces a Staggering Budget Shortfall, Raising Questions About Cuts to City Services
Los Angeles is wrestling with a significant budget shortfall less than halfway through the fiscal year. The city has overspent its budget by nearly $300 million, prompting concerns about potential cuts to essential services. A new report released by the City Administrative Officer paints a stark picture of L.A.’s financial health.
“The warning alarms are appropriately going off,” said Bob Blumenfield, chair of the City Council Budget Committee, adding that the city is in a “particularly challenging financial position.”
The report highlights the $300 million overspend just four months into the fiscal year. Critically, the city’s reserves have dwindled to 4%, far below the 5% minimum the city policy aims for. Should reserves drop below 2.75%, the City Council would require a two-thirds majority vote to withdraw funds, posing the risk of impacting the city’s credit rating and increasing borrowing costs.
## A Perfect Storm of Spending
Legal liabilities have helped create the budget gap. Overspending in this area has already surpassed $112 million, more than double the initial budget allocation for the entire year.
“It’s pretty stunning to see how rapidly we’ve gone through that permissibly,” said Rob Quan, representing watchdog group Unrig LA.
Legal payouts stem from various factors, including police misconduct lawsuits. Such suits account for 40% of payouts, but also include settlements related to traffic accidents involving city vehicles and slip-and-fall incidences caused by aging infrastructure like buckled sidewalks.
Blumenfield points to a broader nationwide trend of rising jury awards in legal battles. “Juries — not just in Los Angeles, but across the nation — are returning much higher judgments,” he explained. “This, of course, has a cascade effect on the settlements.”
The city is also facing a backlog of cases that were delayed due to the slowdown caused by the COVID-19 pandemic.
“The George Floyd cases are starting to come due,” Blumenfield added, referencing lawsuits stemming from police misconduct during the national protests that followed the murder of George Floyd.
Deferred maintenance of city infrastructure is also contributing to the financial strain.
“Our sidewalks haven’t been getting better in the last several years; they’ve actually been getting worse, meaning we see more trip and falls,” Blumenfield stated, predicting legal payouts could reach $300 million by year’s end.
## Difficult Choices Loom
With the city’s finances under pressure, difficult decisions lie ahead.
“We’re talking about slowing down the hiring, which has real impacts on services,” said Blumenfield, “We’re talking about asking departments to absorb some of these deficits within their departments, which also has an impact on services.”
The CAO has recommended borrowing up to $80 million. While this would provide a short-term fix, it would increase the city’s debt burden.
The report identified overspending across various departments. The Fire Department emerged as the biggest contributor to the deficit, exceeding its budget by over $90 million. This spike largely stemmed from a new labor contract granting firefighters a 3% annual raise (equating to a 12% increase by 2027-2028) and a 5% annual increase to their healthcare benefits. This mirrors agreements negotiated with other city unions last year, agreements that continue to weigh heavily on the current budget.
Other departments facing overspending include the City Attorney
