Los Angeles is anticipated to encounter a budget deficit approaching $1 billion in the next fiscal year, as city officials alert of potential layoffs numbering in the thousands and significant budget cuts to bridge the financial gap.

This shortfall, accounting for about 13% of the adopted budget, was disclosed by the city’s administrative officer during a City Council meeting.

The financial projections, labeled as notably severe, arise from a mixture of escalating operating costs and a sharp downturn in revenues.

The city is still grappling with the economic fallout from historic wildfires and broader economic strains, including inflation and the end of federal relief funds from the pandemic.

The city’s administrative officer indicated that the magnitude and seriousness of the deficit make layoffs nearly inevitable, suggesting that the city may be facing thousands of job losses rather than just dozens or hundreds.

This budget alert precedes Mayor Karen Bass's official proposal for the next fiscal budget, which is expected to be released in the coming month.

To prepare, she has instructed the city’s budget office to identify structural spending cuts between $500 million and $900 million.

These actions could involve reorganizing departments, renegotiating contracts, and reducing payroll costs.

In a directive issued this week, the mayor called for a comprehensive reassessment of city operations, encompassing evaluations of department sizes, building utilization, duties, and long-term efficiency strategies.

Local governments across the United States are encountering similar fiscal obstacles as inflation drives up operating costs and federal aid diminishes.

Recently, Chicago’s City Council approved a 2025 budget that addressed a nearly $1 billion deficit, while San Francisco has projected an approximate $876 million budget shortfall for fiscal year 2026.

Some municipalities may also experience further fiscal strain due to anticipated reductions in federal funding.

Past threats from federal authorities to restrict aid to cities not adhering to federal immigration policies, coupled with ongoing cuts to education funding and hiring freezes in public institutions, have added to the mounting pressure on local governments.

City officials in Los Angeles are expected to continue discussions on budget planning in the coming weeks, with the goal of finalizing a balanced budget proposal before the new fiscal year commences.