The Los Angeles City Council will consider a motion Tuesday to transition to a two-year budget cycle, which could alleviate fiscal concerns caused by lower than anticipated revenue, overspending and increasing wildfire recovery costs.
Council members Eunisses Hernandez, Bob Blumenfield and Imelda Padilla introduced a motion June 2024 calling for a report on the potential impacts of switching to a biennial budget cycle. Relevant departments would also provide a proposed timeline with due dates and ways to bolster public participation.
By moving to a two-year budget, the council members aim to address existing barriers to public participation on the city’s spending plan.
“…These adjustments will ensure a more inclusive and harmonious budget system,” the motion reads.
According to the council members, the current budget cycles “(do) not allow for adequate time for the council to thoroughly review the proposed budget or the public sufficient opportunities to engage in the budget process.”
Each year, the mayor releases a proposed budget — Mayor Karen Bass is expected to share her priorities on April 21 for fiscal year 2025-26. The proposed budget then undergoes review in a series of public hearings led by the City Council. Department managers, the Mayor’s Office, the City Administrative Officer share their goals and needs for the fiscal year.
The budget must be approved by June 30, and the fiscal year begins July 1.
In early March, City Controller Kenneth Mejia released the annual revenue forecast report, which projected year-end revenues will fall below $140 million. Sales and business taxes combined are projected to be $92 million below the FY 2024-25 budget.
Projections also showed revenues will fall short $320 million in FY 2025-26 as a result of stressors with federal trade, immigration policies and the impact of January’s wildfires to local taxes, among other challenges. Additionally, general fund revenue is likely to decrease by $73 million due to a loss of $198.5 million in federal grants.
The City Administrative Officer Matt Szabo also warned of a potential $400 million shortfall in FY 2025-26.
In a report published Feb. 28, the CAO identified $300.54 million in overspending in FY 2024-25, as well as $190.29 million in potential solutions and another $30.23 million in future actions that could further reduce the cost.
If approved, part of these solutions would authorize further use of the reserve fund, a pending transfer of $5.23 million for settlements and judgments. The fund is a “rainy day” account for emergencies, which has been reduced from a record $648 million two years ago to $263.54 million. City officials may need to declare a fiscal emergency if the reserve fund falls below 2.75%, requiring a majority vote prior to the use of reserve funds.
City officials may consider a judicial obligation bond of $80 million to replenish the reserve fund and cover a portion of liability payouts.
The city faces a multi-year deficit as a result of new contracts with the unions representing Los Angeles Police Department officers and for civilian workers totaling $1 billion each.
The city is also dealing with overspending due to liability payouts. A majority of these settlements stem from LAPD negligence or abuse, as well as injuries caused by aging infrastructure including sidewalks and street lights, and in some cases fallen tree limbs. The CAO previously reported $112 million in payouts, and most recently projected that by the end of FY 2024-25 that expense will increase to $320 million.
Another significant budgetary strain comes from increasing costs for outside counsel by the City Attorney’s Office.
As elected officials consider ways to increase revenues, some options may lead to higher taxes, fees, and other costs for taxpayers.