City Of Los Angeles Expected To Make Major Cuts As City Faces A Nearly $1 Billion Budget Deficit

Los Angeles City Administrative Officer Matt Szabo shocked many on the Los Angeles City Council Wednesday by announcing that the city budget deficit was worse than they thought, coming in at just under $1 billion in the red.

In a presentation given to the City Council, Szabo broke down where $61 million of the deficit came from the existing budget gap from the last fiscal year. A decline in overall revenues brought on by “downward economic trends” led to a revenue gap of $315 million. Increased spending on legal payouts brought in another loss of $100 million because of liability claims.

Adding to this was $275 million that Szabo said was needed to replenish the city’s reserve fund as it had been depleted in recent months to balance the 2024-2025 budget, which was decimated by an estimated $282 million in wildfire expenses stemming from the Palisades fire in January. The city also stands to lose another $80 million in solid waste fee subsidies. On top of all that was an additional $250 million in scheduled pay raises for city employees.

Szabo said on Wednesday that the huge budget gap all but certainly means mass layoffs of city employees, likely in the thousands.

“The severity of the revenue decline, paired with rising costs, has created a budget gap that makes layoffs nearly inevitable,” said Szabo. “We’re not looking at dozens or even hundreds of layoffs, but thousands. However, thousands of layoffs cannot and will not be the only solution. The city is currently facing serious financial headwinds. Immediate spending reductions are required. And this body needs to prepare for further reductions if revenues continue to decline.”

“The closest this would compare to would be, I believe, it was the ’09,’10 budget, which was the first year that the city felt the full impact of the crash in 2008 and the subsequent recession. I can tell you that the mayor is absolutely committed to preserving as many jobs and city services as possible, as we face these economic headwinds. Because of the severity of the gap we are facing, the mayor has made it clear we need to take action now.”

In addition to city employee layoffs, City Council members have floated several ideas, including deferring all union-negotiated pay raises for a period of time and cutting all vacant positions, the latter of which was used during the budget crunch last year to eliminate 1,700 jobs.

Also being targeted is the $80 million in solid waste subsidies, with the city now deciding on getting rid of or reducing trash pick up subsidies for low-income Angelinos, as well as raising the trash pick up rate from $75 every two months to $155. Should those changes occur, the city could see as much as $200 million come in as a result. The $100 million in liabilities and lawsuit payouts was especially stressed by Szabo as an area in need of improvement, with City attorneys now likely to fight harder against those cases.

“Plaintiff attorneys are getting rich at the expense of taxpayers and city services,” added Szabo. “Every dollar that goes towards a liability payout due to a lawsuit is reducing a city service.”

City Council Members Marqueece Harris-Dawson and Katy Yaroslavsky also noted several revenue generating ideas, including hiking fees, to help bring in more funds to the city. Other Councilmembers showed surprise at the projected loss.

“There’s no question that all of us are in shock with this number,” said Councilman Bob Blumenfield.

The issue now falls to Los Angeles Mayor Karen Bass, who must release a proposed 2025-2026 budget and her strategy for closing in the huge funding gap by April 21st.

Nearly $1 billion in the red

“For too long, the City’s budget and operations have simply been based on the way the City operated in the previous year,” said Mayor Bass in a statement on Wednesday. “This year, we must deliver fundamental change in the way the City operates and base our budget on how the City can best serve the people of Los Angeles and to best use their scarce budget dollars.

“Since taking office two-and-a-half years ago, I have confronted some of our city’s toughest challenges by working to change the broken status quo at City Hall. The need for structural sweeping reform of the City’s budget and operations has only intensified, and changing the status quo is at the heart of my office’s work as we continue to draft my proposed budget for the 2025-26 fiscal year.”

In a letter to Szabo, Bass also pointed out what she thought were major factors in the budget gap, and gave possible solutions that could be seen in her proposed budget next month.

“Downward economic trends make it so revenues to the City’s budget in 2025-26 are now projected to be hundreds of millions of dollars less than previously projected. In addition to these trends, costs will increase because of liability payments, wildfires, personnel and other costs. The unanticipated tripling in the amount of liability payments further stresses our budget. The wildfires in the Palisades have increased costs related to emergency response and recovery, and will decrease revenues from lower property tax assessments on lost homes, lost revenues from closed businesses, and other negative economic impacts.

“Los Angeles’ budget is facing extreme uncertainty in terms of federal funding, and our City is affected by downward national economic trends ranging from unpredictable federal fiscal policy and ever-changing tariff proposals, to volatile stock markets, to continued post-pandemic impacts related to tourism, lower office occupancies and more.

“We need to save between $500 million and $900 million in structural budgetary expenses in the 2025-26 Fiscal Year to bring the budget closer into balance in future fiscal years. This should include proposals that reduce liability costs, proposals to change the number, structure, and responsibilities of departments and reassign city services to refocus the city’s work on its most critical services, proposals to reduce departmental contract expenses, proposals that realize payroll and benefit savings, proposals that preserve our reserve fund and proposals that create structural reforms to enable ongoing budget balance in future fiscal years.

“We must leave no stone unturned.”

With a budget deficit of nearly a billion now on the board and only a limited amount of time to address it, many working for the city suddenly faced a stressful day on Thursday, especially with a massive amount of layoffs on the horizon.

“We have been swamped with requests all morning,” said civil servant Veronica Cavanaugh to the Globe on Thursday. “We’ve been really busy since that Council meeting yesterday.”

The Globe sent an interview request to Mr. Szabo on Thursday, wanting to confirm if members of the LAFD and LAPD will be spared layoffs. We will update this article when he replies.