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Los Angeles Faces Possible Budget Shortfall Of $400 Million

Los Angeles is facing a possible budget gap of up to $400 million, which could prompt city leaders to cut vacant jobs in departments already trying to plug staffing holes.
The City Administrative Officer's report found overspending of $297 million, and General Fund revenues — which pay for many city services — are about $158 million short of what was expected in tax revenues.
The report recommends that city departments cut their “non-critical” vacant jobs to free up some funding, which could have long-term impacts on city services.
Breaking down the budget
The largest area of overspending went toward salaries for the Los Angeles Police Department, according to the report.
The costs are connected to the four-year contract the Los Angeles Police Protective League reached with the city last August. The deal was expected to increase spending by $97 million total for this fiscal year — $80 million for salaries and $17 million for overtime.
“We sort of expected that the LAPD would go over because of the new salaries and the new contract,” Controller Kenneth Mejia told LAist. “But, even before this year, generally the LAPD goes over their original adopted operating budget.”
The amount of money the city has to pay out to settle lawsuits is also much higher than expected. Mejia said claims jumped 100% in the last fiscal year alone.
As for General Fund revenues, the report states the city could recover some of that $158 million.
However, the largest gaps came from taxes.
Business taxes are $32 million under what was planned for, and sales taxes are $18 million under. According to the report, this is partly because of the dual Hollywood strikes and a rise in inflation.
The transient occupancy tax, which is a 14% charge for all properties where guests stay within the city for 30 days or less, is estimated to be $15 million below expectations. The report lays the blame on lower international tourism spending related to China’s economic slowdown.
Documentary transfer taxes — which includes proceeds from Measure ULA, the added tax on properties that sell for $5 million or more — have fallen short by $25 million shortfall because of higher interest rates cooling the housing market, according to the report.
Overall, the city is facing a projected budget gap between $350 million and $400 million for the next fiscal year, which starts in July.
How to address it
Most city departments have actually been generating “significant” budget surpluses because of their high vacancy rates. About 1 in 6 city jobs are unfilled, according to the controller’s office.
However, the report recommends the city take immediate steps to reduce spending, including getting rid of “all non-critical vacant positions.”
The LAPD, the fire department, correctional nurses, and public works are considered critical and would likely not be affected.
“The people who trim the trees, the people who clean the animals’ cages, the people who do the accounting, the people that are working throughout the city in recreation and parks — those folks are not critical under these definitions,” chief deputy controller Rick Cole told LAist.
Cole said those services may not seem critical at first, but after a while, the cages will get dirty, the accounting will pile up, and the grass in public parks could get completely out of hand.
He added that cuts would also likely affect the city’s aging infrastructure, training programs, and facilities.
“These things don't get fixed overnight,” Cole said. “They don't get fixed by a hiring freeze. They get fixed by a long-term commitment to budgetary reform.”
What’s next
L.A. Mayor Karen Bass signed the city's $13-billion budget last May, and it went into effect on July 1.
The City Administrative Officer will hold joint meetings with Bass’ team late next month to check in with city departments about their funding priorities.
Typically, the mayor’s office releases the budget proposal in April. It’s then reviewed by the L.A. City Council, and if adopted, goes back to the mayor’s desk for final approval.
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