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LA WATCHDOG - The massive increase in liability claims is one of the reasons this year’s City’s budget is in the red by almost $300 million. According to Controller Kenneth Mejia’s letter to Mayor Karen Bass, legal liability judgments and settlements are estimated to be $301 million for this fiscal year that ends on June 30. This compares to budgeted liability claims of $87 million, a difference of over $214 million.
While this overage is expected to be covered by unappropriated balances (specified reserves), the major portion will be funded by tapping the already depleted Reserve Fund. It will also require a cut in basic services such as the repair of our streets and sidewalks and the construction of homeless housing.
For the fiscal year that ended on June 30, 2024, legal liability judgment and settlements were $240 million, $163 million more than the $87 million specified in the 2024 City’s adopted budget.
There has been a significant escalation in liability claims. For the previous five years (2019-2023), the average liability claim was $115 million. There are many reasons for the rise in liability claims: an increase in the number of settlements and judgments, an unlevel playing field favoring the plaintiffs’ bar and runaway juries (California is considered a Judicial Hellhole), whistleblower litigation, the failure of the City to maintain its infrastructure, judgments against the Police Department, and numerous workplace related claims by City employees.
There are many issues surrounding the escalation in liability claims and its impact on the budget that are beyond the control of the City. There is, however, one easy way to lessen the commotion surrounding the impact of liability claims.
When the Mayor and the City Administrative Officer are developing the Proposed Budget, they need to develop a realistic and honest budget estimate for liability claims, unlike in past years where the budget line item was underestimated.
According to the City Attorney’s Budget Request that was presented to Mayor in November and that is being used to develop the Mayor’s Proposed Budget that will be submitted to the City Council on April 20, there is a liability claim line item for $307 million, substantially more than the previous budget estimate of $87 million. This request is easily justified given this year’s liability claim of $300 million.
Will the Mayor and CAO develop a balanced, transparent, and honest budget that relies on a reasonable estimate for liability claims? Stay tuned.
[Note: This does not include the significant impact of the wildfires on the City budget or liability claims that will be determined over the next two months.]
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee, the Budget and DWP representative for the Greater Wilshire Neighborhood Council, and a Neighborhood Council Budget Advocate. He can be reached at: [email protected].)
