With the city facing a nearly $1 billion deficit in the upcoming fiscal year, Mayor Karen Bass will release her proposed budget Monday.
The mayor is scheduled to deliver her State of the City speech at midday Monday at City Hall, where she is anticipated to touch upon the city’s financial health. She could outline initiatives to restructure city government and restore the reserve fund, which has been strained due to increasing liability payouts.
In March, a top financial city adviser warned elected officials that the city’s grim outlook for FY 2025-26 will require tough decisions and could lead to thousands of layoffs. City Administrative Officer Matt Szabo attributed the city’s condition to declining tax revenue and rising costs.
January’s wildfires also exacerbated financial issues.
Bass and the City Council previously approved new contracts with its labor force — Los Angeles Police Department officers and various unionized city employees — amounting to $1 billion each by the end of FY 2028-29.
As a possible solution, elected officials began discussions with its unions to defer scheduled pay raises or make other concessions.
At the time, the mayor issued a statement promising to deliver “fundamental change in the way the city operates.” She also made a commitment to preserving critical city services.
City officials have been dipping into the reserve fund, an emergency account used to maintain operations during tough financial years. The CAO previously reported the reserve fund stood at about 3.22% of the general fund — well below the city’s minimum 5% policy.
The City Controller’s Office released a report projecting year-end revenues will fall $140 million below the adopted FY 2024-25 budget. Sales and business taxes combined are projected to be $92 million below budget.
Projections also showed revenues will fall short $320 million in FY 2025-26 as a result of factors including federal trade and immigration policies and the impact of this year’s wildfires on local taxes, among other challenges.
As elected officials consider ways to increase revenues, some options may lead to higher taxes, fees, and other costs for taxpayers. The city is also considering bond measures to create revenue streams for specific needs, such as maintenance and construction of fire stations.
Last week, the City Council approved a plan to increase trash collection fees, the first rate adjustment in 17 years. Elected officials are hoping to start the new fees by January 2026, but further approvals are required before the rate change can be enacted.
Sanitation officials noted the service has operated at a loss, requiring a subsidy from the general fund, which they seek to end. The increase in rates is needed to address inflationary costs, and other expenditures, officials said.
In response to the proposed trash rate adjustment, the Howard Jarvis Taxpayers Association criticized elected officials for mismanaging the city into a deficit through overspending, including “recklessly agreeing to unaffordable labor contracts and through policies that have driven businesses out of the city, resulting in lower business tax and sales tax revenue.”
“The mayor and City Council may want taxpayers to bail out Los Angeles, but it’s more likely that taxpayers will bail out of Los Angeles,” the association said in a statement.