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LA WATCHDOG - In June, the City declared a State of Fiscal Emergency based on lower-than-expected revenues, higher personnel costs, and increased liability claims. On October 6, the Mayor issued her message on the proposed development of the 2026-27 budget. While the Mayor made no mention of the fiscal emergency, she indicated that the City is “likely” to face a deficit.
Likely is an understatement. According to the Four-Year Budget Outlook prepared by the City Administrative Officer, the City is projecting a $91 million deficit. This is a low-ball estimate because it relies on optimistic revenue projections and underestimated expenditures, including soaring legal judgements and settlements. More than likely, the City will have to replenish the Reserve Fund because of the deficit that will be incurred in the current fiscal year (2025-26). Overall, the total shortfall for next year is estimated to be in the range of $200-300 million.
Balancing the upcoming budget will require additional cuts in services, especially for public safety and the City’s infrastructure. This may once again result in furloughs and layoffs. More than likely, the Mayor will support ballot measures to authorize tax increases and/or the issuance of bonds that will increase property taxes.
This is just the beginning. There is the Structural Deficit. Over the next four years, the City is looking at a shortfall of over $600 million when the Four-Year Budget Outlook is adjusted for future labor agreements beginning in 2027. Again, this shortfall may be underestimated because of the reliance on optimistic revenue assumptions and underestimated expenditures.
Addressing this river of red ink will require painful “belt tightening” or new sources of revenue that require voter approval. But why would the voters approve of any new taxes when they do not trust the Mayor, the City Council, the union bosses, and the rest of the political establishment?
To begin the process of building trust and confidence in City Hall, Mayor Bass needs to use her political capital to support the budget and fiscal reforms outlined by the City Controller, Kenneth Mejia. They include designating the Controller as the City’s Chief Financial Officer with the ability to audit all programs financed with taxpayer funds, including those of the Mayor’s Inside Safe program, and to review and analyze the budget in real time.
She also needs to endorse the recommendations of the former Deputy Controller Rick Cole to establish a Chief Operating Officer (City Manager) and to develop two-year operating budgets and a five-year capital plan.
Support is also needed for the recommendations of the Neighborhood Council Budget Advocates for an update of Four Year Budget Outlook to reflect anticipated raises for City employees, to conduct open and transparent labor negotiations, to prohibit the City from entering into any labor agreements that create a deficit, and to create a robust Reserve Fund that can only be used for real emergencies.
The Mayor and six members of the City Council are up for elections. There are also candidates for two open seats. Will they endorse real budget and fiscal reform? Or will Mayor Bass and the members of the Harris-Dawson led City Council continue their budget busting ways?
(Jack Humphreville writes the LA Watchdog column for CityWatch, where he covers city finances, utilities, and accountability at City Hall. He is President of the DWP Advocacy Committee, serves as the Budget and DWP representative for the Greater Wilshire Neighborhood Council, and is a longtime Neighborhood Council Budget Advocate. With a sharp focus on fiscal responsibility and transparency, Jack brings an informed and independent voice to Los Angeles civic affairs. He can be reached at [email protected].)
