LA Reduces Deficit From $209M To $96.8M

LOS ANGELES, CA — Top city financial analysts Thursday reported Los Angeles was able to reduce an estimated $209.44 million in overspending down to $96.8 million by fiscal year-end, noting areas of concern as fiscal year 2026- 27 begins July 1.

City officials gave a presentation Thursday on the end-year financial status report, which showed L.A. reduced an estimated $209.44 million in overspending by offsetting about $112.64 million to partially resolve the projected budget gap.

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"I'm happy to report our financial position is an improvement from the same period last year, and the city is currently set to conclude the year largely consistent with assumptions that we've made in the 2026-27 budget," Bryan Oh, a senior administrative analyst for the City Administrative Office, told the five-member L.A. City Council's Budget and Finance Committee.

"Continued fiscal prudence will be necessary to achieve structural balance and replenish the reserve fund as we prepare for upcoming global events, such as the World Cup and Olympics, and adapt to unpredictable changes in federal policy and global relations," Oh added.

As the city enters a new fiscal year, 2026-27, the city is anticipated to have a deficit of $96.8 million, of which $81.45 million is due to overspending and unbudgeted departmental expenses with the remaining in non- departmental expenditures, according to the report.

The largest overspend of about $21.04 million is directly tied to Los Angeles Fire Department overtime, as well as unbudgeted sworn bonuses, higher than anticipated resource deployments for wildfires outside the city, wildfire cost-sharing agreements and costs to participate in intergovernmental medical transport programs.

Similarly, the city is overspending about $16.86 million due to the Los Angeles Police Department's efforts to retain civilian positions that were eliminated in the 2025-26 budget, unbudgeted sworn salaries, an increase of sworn overtime and an increase in contract costs.

The City Attorney's Office continues to run cost overruns — estimated at $9.55 million — on outside counsel and litigation expenses.

Last, the General Services Department is contributing to the deficit of about $6.88 million due to unbudgeted salary payouts, retroactive payments associated with the reclassification change of a certain class of employees, maintenance and operations at the Figueroa Plaza and Mayfair Hotel, and costs associated with the city's aging fleet of vehicles.

In the non-departmental category, the city is overspending on human resources benefits, and for oil, water and electricity, according to the report.

While cumulative reserves are below the city's 10% policy at 7.6%, the city's actions to address the deficit have resulted in $14.28 appropriated to the reserve fund. The reserve fund is at 5.34% of the city's general fund, but with the funding boost, it will increase to $516.94 million or 6.01% of the 2026-27 general fund.

City Councilwoman Katy Yaroslavsky, chair of the budget committee, raised concerns about how they will respond to rising fuel costs caused by the U.S. war with Iran. Staff noted it will be an ongoing issue they will continue to track through reports in fiscal year 2026-27.

Meanwhile, Councilwoman Eunisses Hernandez said she wanted to work on lowering overtime costs across all departments. Staff explained that while overtime can be budgeted, it can go beyond what was allocated.

General managers can direct staff to work overtime. Funds for overtime can come well after the fact. Some workers can bank overtime hours as paid- time off.

"It's a handful of departments, and so that's why I asked, because I'm not just referring to these two (fire and police), there's a handful. I would like to work on that with you, and if we don't have recommendations now, I'll follow up," Hernandez said.

The budget committee was critical of the City Attorney's Office for its continued increase in spending on outside counsel and issues related to hiring more in-house attorneys.

A representative for the City Attorney's Office explained they have hired more than 100 individuals, but did not specify which positions were filled. The office has lost about 30 lawyers, many due to retirement.

Those new hires, however, mean they are spending more on salaries.

The City Attorney's Office is working on a robust personnel plan with the City Administrative Officer and the Chief Legislative Analyst, which aims to guide hiring over the next three years and reduce the reliance on outside counsel and lower caseloads.

In fiscal year 2026-26, the city attorney is projected to spend $22.12 million on outside counsel. The city has provided $16.83 million but is anticipated to cover a remaining overspend of $5.28 million. Litigation expenses are projected at $19.41 million, of which $5.22 million remains to be paid.

City officials have said the overspend in litigation is drive by increases in complex cases and costs to provide litigation services over the past five years. The overspend in outside counsel is due to an increase in complex litigation beyond the City Attorney's office capacity to litigate, according to the report.

City News Service