By Jose Navarro, MBA | The Navarro Report | California Affairs
Los Angeles — The city closed out fiscal year 2025-26 the way it opened fiscal year 2026-27: over budget. City financial analysts reported in June that Los Angeles had trimmed an estimated $209.44 million in overspending down to $96.8 million by year’s end — call it progress — except the very same report projected a fresh $96.8 million deficit for the year that had just begun, driven by the same departments running over their own budgets for a second consecutive year.
Two departments account for the bulk of it. The Los Angeles Fire Department overspent by roughly $21.04 million, tied directly to overtime, unbudgeted sworn bonuses, higher-than-anticipated deployments to wildfires outside the city, wildfire cost-sharing agreements, and costs from participating in intergovernmental medical transport programs. The Los Angeles Police Department overspent by about $16.86 million, driven by efforts to retain civilian positions the city had already eliminated in the 2025-26 budget, unbudgeted sworn salaries, higher sworn overtime, and rising contract costs. Together, fire and police overspending — most of it overtime in one form or another — accounts for roughly 40% of the city’s entire year-end budget gap.
A Pattern the City’s Own Reports Confirm
This is not a one-year anomaly. City Controller Kenneth Mejia’s office has published a running Overtime Dashboard tracking monthly overtime spending against adopted budgets for every city department going back to fiscal year 2024, and it shows the same departments exceeding their overtime allocations month after month, year after year. In his January 2026 letter accompanying the city’s Annual Comprehensive Financial Report, Mejia was blunt: “revenue shortfalls, liability payouts, and departmental overspending continue to be the cause of our budget deficit for the second year in a row.” The city had to tap $160 million from its Reserve Fund just to cover the prior year’s revenue shortfall — money that exists precisely to cushion genuine emergencies, not to backstop overtime budgets that departments treat as guidelines rather than limits.
City Councilmembers have started to push back publicly. At the June budget committee hearing, Councilmember Eunisses Hernandez said she wanted to work on lowering overtime costs “across all departments” — not just fire and police — noting that staff confirmed overtime can be authorized well after the fact, that general managers can direct employees into overtime without prior budget sign-off, and that some workers can bank overtime hours as paid time off rather than cash, compounding the tracking problem. Staff acknowledged it would remain “an ongoing issue” tracked through further reports in fiscal year 2026-27 — an admission, in effect, that no structural fix is yet in place.
The Reserve Fund Is Not a Solution
The mechanics matter here because they explain why this keeps recurring. Overtime is budgeted as a line item each year, but department general managers retain the authority to order staff into overtime regardless of whether the budgeted amount has been exhausted. The bill arrives after the fact, often well after the fiscal year has closed, at which point the only remaining tool is to pull from the Reserve Fund or carry the shortfall into the next year’s ledger. The city’s own Reserve Fund has already dropped toward policy minimums in recent budget cycles specifically because of this pattern — a fund designed for recessions and disasters, being used instead to paper over budgeting habits departments have shown no sign of correcting.
Mejia has asked for more auditors specifically to get ahead of this dynamic rather than simply reporting on it after the damage is done. His office has pointed to overtime, costly infrastructure and police-related lawsuits, and spending tied to large semi-independent agencies like the Department of Water and Power as the highest-value places for expanded audit capacity — precisely because these are the categories that have produced overspending in back-to-back fiscal years while nominally “balanced” budgets get adopted each June.
What a Second Consecutive Year Signals
A single year of departmental overspending can plausibly be explained by unforeseen events — and city staff have cited exactly that, pointing to wildfire deployments and the fiscal disruption from tariff and immigration policy uncertainty. But a second consecutive year, with the same two departments driving the majority of the gap through the same mechanism — overtime authorized in real time with no budget-enforcement checkpoint — stops being an anomaly and starts being a structural feature of how the city manages its two largest departments. The council’s own budget staff effectively conceded this in June, telling committee members the overspending pattern would need continued tracking into fiscal year 2026-27, rather than presenting a plan to prevent it from recurring a third time.
For a city government carrying $14.85 billion in proposed spending for fiscal 2026-27 and already opening the year with a $96.8 million hole, the math is straightforward: every dollar of unplanned overtime is a dollar that either comes out of the Reserve Fund, gets deferred into the next budget cycle, or displaces some other planned expenditure entirely. Los Angeles taxpayers are, in effect, underwriting an overtime budget that functions less like a limit and more like a suggestion — and until the city adopts real-time controls on overtime authorization rather than after-the-fact accounting, the pattern Mejia’s dashboard has already documented for two straight years has no obvious reason to break in year three.
The Numbers Behind the Numbers
It’s worth sitting with how the city arrived at the improved $96.8 million figure, because the path there is itself instructive. Staff didn’t close the original $209.44 million overspending estimate through new controls on the departments causing it; they closed roughly $112.64 million of it through offsets — one-time revenue and budget maneuvers elsewhere in the city’s books that partially absorbed the gap without touching the underlying overtime dynamics at LAFD and LAPD. That is a pattern budget watchers will recognize from Oakland, San Francisco, and other California cities currently managing structural deficits with one-time fixes: the headline deficit shrinks, the press release reads as good news, and the mechanism that produced the overspending in the first place is left completely intact for the following year.
The city attorney’s office drew its own criticism at the same June hearing for continuing patterns budget committee members found concerning, a reminder that overtime and sworn-department overspending are not the only line items straining the city’s finances — but they remain, by dollar volume, the largest and most recurring ones. Whether the council follows through on Hernandez’s stated intent to bring overtime under control “across all departments,” or whether fiscal year 2026-27 ends the same way the last two did — with a year-end report citing wildfires, contract costs, and unbudgeted salaries as the explanation rather than the symptom — will be the clearest test yet of whether Los Angeles’s budget oversight has any teeth at all.
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