It’s early, but LA County’s next budget starts with $200 million deficit and hiring freeze

After absorbing 8.5% across the board cuts, Los Angeles County is facing more financial woes starting next fiscal year, including an estimated $200 million budget shortfall by the end of June, according to the county’s acting chief executive officer.

In a preliminary look at balancing the 2026-2027 budget that starts July 1, acting CEO Joseph M. Nicchitta gave general recommendations to the Board of Supervisors on Tuesday, Feb. 3 that include asking department heads to trim costs, increasing county fees and instituting hiring and spending freezes.

“I think layoffs are the last resort,” he said.

The budget crunch is a result of a perfect storm of higher fixed costs and lower federal and state revenues. Both sides of the budget equation could get worse before the fiscal year starts July 1, and continues battering the county’s finances in future years.

“The iceberg is in the distance and we are trying to turn the wheel,” Nicchitta said.

Due to agreements by the Board to raise salaries of county workers, the next budget includes a 2% cost-of-living adjustment, equalling about $181 million in costs.

Spending is due on a settlement of about 11,000 claimants alleging sexual abuse claims against county workers, some dating as far back as the 1950s. A $1.2 billion payment is due, the first of several in a $4 billion settlement, which increased by $828 million in October when 400 more plaintiffs claimed they were the victims of childhood sexual abuse at the hands of county workers.

The settlements were allowed due to Assembly Bill 218 that was signed into law, which temporarily lifted the statute of limitations on allegations of childhood sexual abuse.

Fifth District Supervisor Kathryn Barger remained critical over the legislation by principal author Assemblymember Lorena Gonzalez, D-San Diego, that became effective in 2020 and unleashed the avalanche of lawsuits resulting in billions of dollars in payouts pressing on county budgets for years to come.

“AB 218 robbed LA County taxpayers. I will keep saying that. I blame the legislator who brought this legislation without thinking about the consequences,” Barger fumed. County leaders, including Nicchitta, have gone to Sacramento to try to pass corrective legislation that would stop the flow of new lawsuits, which remains a possibility.

Outside revenues once a certainty have been cut by H.R. 1, the so-called Big Beautiful Bill passed by Congress and signed into law by President Donald Trump that cuts funding for Medi-Cal healthcare used by low-income residents in LA County.

Although it’s tied up in the courts, last month Trump cut about $10 billion in childcare and other family services to five Democratic states, alleging fraud. The state of California bears about $5 billion of that. If those cuts remain, that will take a chunk out of the county budget, Nicchitta warned.

“The pressures on our county have only increased,” Nicchitta said. “We expect conditions to worsen next year as federal revenue reductions take hold.”

He said the overall impacts from the Big Beautiful Bill will cost LA County more than $2 billion when fully implemented in FY 2027-2028.

Second District Supervisor Holly Mitchell said the cuts in the massive bill are manmade by a Congress and Executive Branch that gave tax breaks to the wealthy and cut funding for healthcare, childcare and other family services used by the poor.

“Our ultimate job is remain fiscally solvent,” Mitchell explained. “Our funding is a three-legged stool: federal, state and local dollars. This is a unique storm because it is hitting all three layers.”

Nicchitta’s list of recommendations include increasing revenues, which include gaining naming rights for county properties, selling surplus county holdings, and raising certain county fees. Though he gave no specifics.

He is keeping an eye on a proposal supported by Mitchell and a coalition of nonprofit healthcare groups to place a half-cent sales tax before voters in June to fill the gap of reduced healthcare coverage for 3.3 million LA County residents.

A coalition that includes the St. John’s Community Health, Community Clinic Association of Los Angeles County, Health Justice Action Fund, InnerCity Struggle and Service Employees International Union 721 may ask the Board of Supervisors to place the measure on the ballot in March.

The CEO said the county’s property taxes are stable, at about $8.3 billion in revenues from the 2025-2026 year budget. Sales taxes, for which he did not yet have a revenue figure, are more volatile and depend on consumer behavior. In 2025 and in January, he said Immigration & Customs Enforcement (ICE) raids affected sales at restaurants and car washes, and that may lower county sales tax revenues.

Instead of cutbacks across all departments, he is meeting with department heads to discuss ways they can trim costs. The new Homeless Services & Housing Department, which is reliant on sales tax revenue from Measure A, a half-cent sales tax for homeless services, has said lowered revenues meant it will cut back about $219 million.

Some who addressed the board were concerned about proposed cuts to homeless services for LGBTQ youth transitioning out of foster care, known as Transition Age Youth (TAY).

“TAY youth proposed cuts to homeless services are deeply concerning. Cuts will dismantle programs we have fought for,” said Danny Gonzales with the Los Angeles LGBT Center.

Amy Tran, a county public health nurse, was worried that public health services, such as vaccines for tuberculosis and measles, would be caught up in cost-cutting measures. “Please protect public health and protect the community,” she said.

Spending cuts and hiring freezes are conditional, Nicchitta said. Although each department must come up with a deficit reduction plan, if a department has a very large number of vacancies or can prove a critical public health need, it may be exempted from the hiring and spending freezes, he said.

He said the department heads and his staff will continue to meet before making specific recommendations for the upcoming budget. “We have a lot of work to do between now and the supplemental budget,” Nicchitta said.

Some department heads have suggested increasing revenues. Jeff Prang, county assessor, had used a new computer tool to find that 1,000 planes in airports have not been paying taxes, said Fourth District Supervisor Janice Hahn. This could generate $32 million, she said.

“Short of putting additional taxes on the ballot, we will look at other ways of increasing revenues,” said Hahn, who added: “Our budget is concerning and has been for some time. It is definitely an all-hands on deck situation,” she said.