With four months left in the 2025-26 fiscal year, Los Angeles is expected to overspend by more than $200 million with general fund revenues estimated to be on budget, the city Controller’s Office announced today.
Despite challenges to the city’s economy such as January 2025 wildfires, tariffs, geopolitical turmoil and aggressive federal immigration enforcement, Los Angeles proved resilient, according to the City Controller’s Office annual Revenue Forecast Report. By year-end, the city’s revenue is expected to come in at or slightly below the adopted budget, or approximately $25 million short of estimates.
The report estimated that tax revenue in fiscal year 2026-27 will slightly increase by 1%.
“Although revenues are expected to remain flat with the budget throughout the current fiscal year and go slightly up next fiscal year, the city must enact better controls and accountability measures on overspending and massive liability payouts,” city Controller Kenneth Mejia said in a statement.
He warned that revenue growth must be equal to or even outpace spending in order to avoid short-term fixes such as layoffs, furlough, hiring freezes, cutting positions from understaffed departments and tapping the city’s reserve fund.
Mejia recognized the work being done by the Mayor’s Office and Charter Reform Commission toward the formal adoption of a two-year budget process and a capital infrastructure program as official policy.
“We look forward to building on this collaboration as we get the city on the right fiscal path, so it can provide the service and resources Angelenos deserve,” Mejia added.
Highlights of the annual Revenue Forecast Report estimated the city had a 6%-, or $18-million-, decrease in revenue from its transient occupancy tax, also known as the “hotel tax,” as well as drop in special parking fees of about $37 million, or 100%, and a decrease in federal grant funding of about 62%, or $29 million.
Income from the hotel tax decreased due to a decline in tourism. The report noted visitors were less likely to travel to L.A. in part due to heightened immigration enforcement concerns and broader political tensions.
Property tax revenue was projected below 13%, or $23 million. Revenue generated by special parking fees were used to cover outstanding liabilities.
On the other hand, the report estimated a 7% or $48 million increase in revenue from utilities. The city previously increased fees for garbage-collection and sewer service. There was also greater demand for utilities.
Los Angeles received $22 million in additional one-time aid from the state to offset property tax losses from the Palisades Fire. The business tax estimate, in total, was about 3%, or $27 million above budget.
In addition, the city used more special funds to fund positions instead of general fund dollars due to budgetary challenges. Revenue growth also included about $86.6 million in departmental receipts of collections from prior year billings and a $29 million transfer from the budget stabilization fund, according to the report.
The City Controller’s Report covers updated revenue estimates for the remainder of the fiscal year, which ends June 30, 2026. The report also details projects for fiscal year 2026-27, which begins July 1.
The report recognized that economic conditions are susceptible to change in the next 16 months, with major events on the horizon such as the World Cup, broader macroeconomic headwinds, geopolitical turmoil, as well as federal tariff and immigration policies.
Mejia’s office estimated that tax revenue is projected to increase by $107 million, or by 1% next fiscal year.
Revenue from the hotel tax, property tax and departmental receipts are anticipated to be above fiscal year 2025-26 figures. Projected revenue from the business tax, utility users tax, documentary transfer are projected to remain flat.
The city is not expected to receive state funding in 2026-27 to backfill property taxes lost due to the Palisades Fire. Additionally, federal grant fundings and franchise income taxes are anticipated to be below 2025-26 figures, according to the report.
Hotel tax revenue is projected to increase by 3.5%, or by $11 million, but it depends whether major global events, starting with the World Cup, followed by the 2027 Super Bowl and 2028 Olympic Games, bring in tourists.
State officials previously reported that tourism declined from key international markets such as Canada and Mexico as a result of federal policies.
The report noted the city could see an additional $22 million to $44 million more annually from the hotel tax depending on if voters approve two-separate but related measures on the June ballot to alter the hotel tax.
Mejia continued to advocate for a long-term, strategic approach toward fiscal sustainability with the implementation of a two-year budget, capital infrastructure program, transparent budgeting, performance based budgeting, accountability for overspending and liability claims, among other efforts.