(The Center Square) – The City of Los Angeles has spent half its reserves in the current fiscal year alone, and may soon have to declare a fiscal emergency, according to a new financial report from City Controller Kevin Mejia.
“As we are all painfully aware, revenue shortfalls, liability payouts, and departmental over-expenditures caused the City to end the year in deficit, requiring drawing down nearly half the City’s General Fund Reserves,” wrote Mejia in the new report on the 2023-2024 fiscal year. “We’ve gone from record levels of General Fund reserves 18 months ago to the brink of needing to officially declare a ‘fiscal emergency.’”
The city has a goal of maintaining reserve funding levels of at least 5% of general fund revenues. When city reserves fall below 2.75% of revenues — level required to be in the Emergency Reserve Account — the city council must declare a “fiscal emergency.”
“The Reserve Fund cash balance at the beginning of 2023-24 was $648.3 million, or above the 5.0 percent policy target,” wrote Mejia. “In contrast, the adjusted Reserve Fund cash balance at the start of 2024-25 was $330.6 million, falling $76.4 million short of the reserve policy target.”
The reserve balance has since fallen to $313.8 million, or $110.3 million above the “fiscal emergency” declaration level. With a $12.9 billion budget for the current 2024-2025 fiscal year, $110.3 million represents just 0.86% of budgeted expenditures — a razor-thin margin.
Los Angeles is set to lose millions of dollars in federal public safety funding due to its sanctuary city programs, and FEMA funding for migrants that was $24 million in 2024.
Multibillion dollar payment extensions for property tax payments for wildfire-impacted ZIP codes, along with hundreds of millions of dollars in lost property taxes from fire damage will significantly reduce property tax revenue for the 2025-2026 fiscal year.
LA is also requesting $3.2 billion in federal funding from the Trump administration for the 2028 Summer Olympics, while California Gov. Gavin Newsom is requesting federal aid to assist with wildfire recovery efforts.
Should federal aid not materialize, Los Angeles may soon have to declare a fiscal emergency, which would allow the city to tap into protected reserves with a two-thirds vote, but would likely result in higher borrowing costs for the city and austerity measures that could impact city services.
