Los Angeles Faces Nearly $1 Billion Deficit as It Rebuilds From Fires

Shifting federal policies, combined with the cost of January’s wildfires, have created “serious financial headwinds” for the city, officials said.

Los Angeles is facing a projected shortfall of nearly $1 billion next fiscal year, and significant cuts and “thousands” of layoffs are “nearly inevitable,” the top budget official told the City Council on Wednesday.

The sobering forecast was the latest blow to Los Angeles officials as they grappled with the toll of the Jan. 7 wildfires and federal policy changes that were expected to reduce revenues from trade and immigration. Calling the situation “extraordinary,” Matthew W. Szabo, the city’s administrative officer, compared the city’s financial straits to the aftermath of the 2008 financial crisis and said the budget gap estimated for the fiscal year that starts in July represented an eighth of the $8 billion general fund.

“The city is currently facing serious financial headwinds,” he said. “Immediate spending reductions are required. And this body needs to prepare for further reductions if revenues continue to decline.”

Preliminary estimates have placed the city’s costs from the January wildfires at more than $282 million just for expenses such as firefighter and police officer overtime and infrastructure replacement — unexpected bills that have already worsened the city’s budget outlook. But Los Angeles officials have increasingly noted that shifting federal policies on tariffs, deportations and reductions in federal spending have combined with the disaster to dampen the economy in Southern California and its city tourism, business and property tax revenues.

In a separate forecast this month, for example, the city controller, Kenneth Mejia, estimated that city revenues would remain flat or decline next year, partly because of fire losses and the soaring costs of disaster insurance and partly because of “uncertainty generated by the new presidential administration’s radical policies on tariffs, federal spending cuts and immigration.” President Trump, he noted, has already signaled that federal grants to the city would drop after they had risen during the Biden administration.

Even before the fires, the city had stretched to pay for new contracts with the politically powerful unions that represent tens of thousands of public safety and civilian employees. Some 1,700 vacant positions were eliminated last year to help cover the cost of raises for current employees.