LOS ANGELES — A top financial adviser to the city of Los Angeles Wednesday shared a grim outlook for fiscal year 2025-26, saying elected officials need to address a projected $1 billion gap that will require tough financial decisions and could lead to thousands of layoffs.

What You Need To Know

  • An LA city financial advisor said the city council needs to address a projected $1 billion budget gap next fiscal year

  • The tough financial decision could lead to thousands of layoffs

  • ity Administrative Officer Matt Szabo said Mayor Karen Bass' proposed budget, which will be released April 21, will close that gap, but it will require difficult "cost-cutting decisions"

  • Szabo attributed the fiscal crisis in part to rising legal payouts in recent years

City Administrative Officer Matt Szabo said Mayor Karen Bass' proposed budget, which will be released April 21, will close that gap, but it will require difficult "cost-cutting decisions." He warned that the severity of revenue declines and rising costs has created a budget gap that makes layoffs "nearly inevitable."

"We are not looking at dozens or even hundreds of layoffs, but thousands," Szabo said. "While layoffs may be necessary, it cannot and will not be the only solution."

"I can tell you that the mayor is absolutely committed to preserving as many jobs and city services as possible, as we face these economic head winds," he added.

Among areas of concern highlighted by Szabo is a $61 million starting gap, which will be exacerbated by $315 million in lower-than-anticipated revenue from taxes, $100 million in liability payouts that are expected to increase, $275 million needed to restore the reserve fund, $80 million related to solid waste fees, and $100 million to cover pensions for members of the Los Angeles police and fire departments.

Szabo attributed the fiscal crisis in part to rising legal payouts in recent years. As a potential solution, the City Attorney's Office is working with the state Legislature on a bill to cap damages.

Pay raises for city employees are set to begin July 1, the start of the fiscal year, adding an additional $250 million in costs for the city.

After Szabo's presentation, the City Council entered into a closed session Wednesday to discuss the city's contracts with several unionized public employees such as police officers, firefighters, trash truck drivers and librarians.

Elected officials may look to defer the scheduled raises or make other concessions.

Bass issued a preview of her proposed budget Wednesday, which she said will "deliver fundamental change in the way the city operates." She directed the CAO to report to her with strategies to "reduce spending significantly while protecting essential services."

"This year, we must deliver fundamental change in the way the city operates and base our budget on how the city can best serve the people of Los Angeles and to best use their scarce budget dollars," Bass said in her statement.

According to Bass' office, downward economic trends mean the city is projected to take in hundreds of millions of dollars less than previously projected. In addition to these trends, costs associated with the recent wildfires are also expected to add to the burden.