By Jose Navarro, MBA | The Navarro Report
When the Palisades and Eaton fires tore through Los Angeles in January 2025, the immediate story was human: lives lost, entire neighborhoods gone, a recovery that would take years. Twenty months later, a second story has emerged, one told entirely in numbers — and it shows a city whose finances still haven’t found solid ground.
Start with the sequence. Heading into the 2025-26 fiscal year, Mayor Karen Bass proposed a budget to close a shortfall that reporting at the time put at nearly $1 billion, driven by downward revenue trends that predated the fires but were then compounded by them. Credit rating agencies S&P Global and Fitch placed the city and the Department of Water and Power on credit warning within days of the disaster. City estimates put wildfire damage to public infrastructure at a minimum of $350 million, with officials telling the city council at the time that the figure would “likely grow.” It has: cumulative damage estimates for the Eaton and Palisades fires, across the broader region, now range from $20 billion to $50 billion.
The city closed that gap, in part, by trimming the fire department’s own budget by $17.6 million and eliminating dozens of civilian positions — a decision Bass’s own fire chief at the time publicly said left the department “not properly funded.” One year later, the deficit hasn’t gone away; it has changed shape. Heading into fiscal year 2026-27, the city projected a $263 million budget hole, driven by a different mix of causes: lower sales tax revenue tied to slower economic activity and federal cuts to local safety-net programs, and legal payouts running $199 million over budget, with $152 million of that coming from the police department alone. Layered on top is a cost unique to the fires: the city waived rebuilding permit fees for thousands of fire victims, which is the right call for families rebuilding through no fault of their own, but it is also a revenue gap the city now has to fill from somewhere else.
This is the part a public finance analyst is trained to flag: the causes keep rotating, but the deficit doesn’t close. A billion-dollar gap tied to the fires and a soft economy became a $263 million gap tied to legal costs and fee waivers. When the underlying driver changes every budget cycle but the bottom line stays red, the problem usually isn’t any single line item — it’s the absence of a structural buffer sized for the city Los Angeles has become: one that hosts national disasters, carries an outsized legal-liability exposure, and is now three budget cycles away from underwriting the 2028 Olympics and a World Cup.
The city’s own emergency-preparedness apparatus tells the same story from a different angle. The Emergency Management Department — the office coordinating Palisades recovery and now also tasked with preparing for the Olympics — has stayed at roughly 30 positions for years, budgeted at about $7.5 million, even as its mission has expanded. A council member representing the Palisades pushed for ten additional positions, costing about $1.1 million a year; the mayor’s office did not include them in this year’s budget. Whatever the merits of that specific staffing decision, it illustrates the pattern: the office managing the city’s largest disaster in a generation has not been resourced as if it were managing the city’s largest disaster in a generation.
None of this is a partisan story. Reserve funds exist precisely so a government doesn’t have to choose, mid-crisis, between paying for recovery and paying for everything else residents rely on. Los Angeles drew down its reserves once for the fires and is now closing a second, differently-caused gap a year later — a pattern that should worry a bondholder and a taxpayer for the same reason: it suggests the city’s baseline spending was never brought back into line with its baseline revenue, and every new shock exposes that gap freshly rather than testing a cushion built to absorb it.
The fix is not exotic. It is the same discipline any organization applies after a shock that reveals a structural gap: size the reserve to the realistic range of disasters a global city its size will face, report legal payouts against budget in real time rather than absorbing overruns after the fact, and treat emergency-management staffing as a line item that scales with named obligations — the Olympics chief among them — rather than one that holds flat by default.
Los Angeles will host the world in 2028. Before then, its budget deserves the same rebuilding effort as its neighborhoods.
Jose E. Navarro, MBA, is a financial controller and founder of The Navarro Report, a public finance and government accountability publication based in San Diego, California.
Human-Directed AI Journalism: This article was researched and directed by the author, with AI-assisted drafting and editing.