Los Angeles’s projected $1bn budget shortfall will lead to layoffs, officials say

Battered by the aftermath of historic wildfires and worsening economic conditions, the city of Los Angeles is projecting that it will face an estimated $1bn shortfall in its budget next year, which is likely to result in major cuts to city services.

Next year’s nearly $1bn budget gap “makes layoffs nearly inevitable”, city administrative officer Matt Szabo told the city council on Wednesday. “We are not looking at dozens or even hundreds of layoffs, but thousands.”

In a statement on Wednesday, the Los Angeles mayor, Karen Bass, said that she was preparing a budget for next year that would “deliver fundamental change in the way the City operates”.

In her “reform budget”, Bass wrote in a public letter addressed to Szabo: “We must consider no program or department too precious to consider for reductions or reorganization.”

The Trump administration’s trade and immigration policies are likely to make Los Angeles’s already bad economic situation even worse in the coming year, Szabo told city officials in Wednesday’s meeting.

Inflation and a weakening economy, combined with the disruption and damage of January’s wildfires, have already driven an estimated $141m reduction in revenue from the city’s business tax, sales tax and hotel tax through the end of February, Szabo said.

“Federal trade policy is not only likely to spur further inflation, but also to slow growth and dampen international travel, upon which our hotel tax relies,” he added.

Donald Trump’s pledges of enacting mass deportations of undocumented people across the country could also have a damaging effect on Los Angeles, and affect the local economy.

“Federal immigration policy provides a particular threat to our local economy,” Szabo said. “The construction industry in the state of California is estimated to be about 40% undocumented, and, due to the fires, there is nowhere in the country where demand for construction and construction-related services will be higher than here in Los Angeles.”

The city is also struggling with a dramatic increase in lawsuit liabilities over the past three years, with payouts in the past year likely totaling $320m.

Szabo said that working with state lawmakers in Sacramento to cap payouts in lawsuits against the city is one strategy to address the city’s ballooning liabilities. He also said that making Los Angeles homeowners pay more for solid waste collection, which he said the city’s general fund is currently subsidizing, could close $200m of the gap in next year’s budget.

The extent of the city’s financial problems took some local officials by surprise, the Los Angeles Times reported, quoting councilmember Bob Blumenfield as saying: “There’s no question that all of us are in shock with this number.”