$183M liability claims leave L.A. in 'dire' budget woe

Los Angeles has committed more than $183 million for liability claims just four months into the 2024-25 fiscal year, and one City Council member described the situation Tuesday as "dire."

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The council voted 14-0 Tuesday to approve more than $3 million for settlements related to liability claims including an automobile collision from 2020, two people who fell due to damaged sidewalks, and a case involving the Los Angeles Police Department.

Councilman Kevin de León was absent during the vote.

Councilman Bob Blumenfield, who chairs the Budget, Finance and Innovation Committee, said the city has exhausted $100 million that was set aside in the budget for liabilities. An additional $60 million from the city's mid-year adjustments and another $23 million from the reserve funds was allocated to address liability claims, he added.

"We've also taken $76 million less in anticipated revenues," Blumenfield said. "What that means is our reserve fund is below 5.07% than we started the fiscal year with. It's at 3.83% and will drop under 3%, which is dangerously low."

According to Blumenfield, the city's reserve funds should be at 10% or at the very least 5% -- a funding account the city should maintain at a certain level for emergencies.

He recommended the city keep in place its critical hiring process -- to limit new hires and prioritize specific positions tied to public safety, which the city implemented at the start of the year as a means to address a budget deficit.

Some council members hoped to sunset the city's hiring policy, but that might not be the case anytime soon.

"Keep in mind that if we go a little bit lower, if we have a few more cases settled, that takes us down to 2.75% then it's going to require a two- thirds vote of this body any time we want to take money out of the reserve fund," Blumenfield said.

"This is bad news, and I'm putting it out there in the context of we're approving all of these settlements, but you need to know the situation is dire, and you need to have that lens as we move forward with all the different requests."

The budget committee is expected to convene Wednesday, and members will have a more thorough discussion about the city's spending, the councilman said.

Last month, the City Council approved a funding request for $160.9 million from the City Attorney's Office to address liability claims. As of Aug. 28, of $130 million allocated in the General Fund Liability Account, $258.6 million had been committed, leaving a shortfall of $128.6 million, according to a report from the City Attorney's Office.

At the time, Blumenfield noted that not paying the required legal settlements is "not an option."

"We need to do everything possible to limit future liabilities and continue to invest in our infrastructure and improve the training of our workforce," the councilman wrote in an email to City News Service.

City Controller Kenneth Mejia had described the situation "disturbing, but 100% predictable." He told CNS that the city has to be realistic about the costs of liability settlements this year. He also advised that the city should consider using discretion on the source of liability payouts: If a claim is related to sidewalks, for example, it should come from the department's budget overseeing sidewalks.

The two biggest sources of liability settlements result from the LAPD and failing infrastructure, according to Mejia.

"L.A. currently lacks a capital infrastructure plan which would allow us to prioritize the more critical projects," Mejia said in September. "We should be doing it by investing in our sidewalks and roads and making our city a better place instead of watching our citizens get injured or killed and paying the price after the fact."

In the last fiscal year, the LAPD accounted for more than 40% of the city's liability payouts, totaling about $104 million, he added.

He warned that short-term impacts of these payouts will put the reserve fund in peril, and in the long-term, will result in deteriorating city services.

"Tragically, not fixing broken infrastructure and not adequately staffing our services will lead to more lawsuits and expensive payouts," Mejia wrote. "It's a vicious downward spiral."

Between 2020-24, the city spent a total of $727 million in liability payouts, according to the controller's office.

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