LA controller: $1.1 billion in liability payouts strain city budget; audit and special-fund reforms proposed

City Controller Kenneth Mejia told the Budget & Finance Advisory Committee on Monday that mounting liability payouts and underused special funds are putting acute pressure on the City of Los Angeles’ general fund and urged both short-term shifts and longer-term policy changes.

"We've paid out $1,100,000,000" in liability payouts since fiscal year 2020 through Dec. 31, 2025, Mejia said, adding that police-related claims account for roughly $435,000,000 of that total and that excessive use-of-force and traffic-collision claims are major drivers. He said the City’s reserve fund has declined from about $648,000,000 two years ago to roughly $449,000,000 now, reducing the City's capacity to absorb future shortfalls.

Mejia said the controller's office projects the current fiscal year will be "on budget or a little bit below" and that near-term revenue gains have come from utility-users-tax increases, stepped-up business-tax collection and one-time receipts. He cautioned that parking revenue and some grant receipts lagged adopted assumptions this year and that transient occupancy tax was down, all of which intensified pressure on city services.

To address the situation, Mejia announced a performance audit of citywide risk-management practices covering fiscal years 2020–2025. "We're doing a performance audit on the city's risk management practices," he said, explaining the review will examine whether city risk-management processes effectively identify, evaluate, respond to and monitor risks to reduce third-party liability payouts and harm.

On special funds, Mejia said his office identified roughly $80,000,000 sitting unused in about 177 special-purpose funds that have not been expended in more than two years. He urged the committee to consider short-term, legally permissible transfers or uses of eligible special-fund balances to shore up the general-fund reserve and recommended systemic reforms — including automatic disencumbrance for funds older than three years, sunset clauses for new special funds and a standardized intake form describing each fund’s intent.

Arnel Aguilar of the controller’s office told the committee staffing constraints and records gaps have made it difficult for departments to close or repurpose idle funds. "Departments are focused on current events," he said, urging use of a focused cross-agency group and records-retention reforms to free up funds that are no longer needed for their original purpose.

Committee members probed both near-term priorities and more structural options. Commissioner Derek Johnson asked for the "low-hanging fruit" the controller would prioritize; Mejia emphasized more conservative revenue projections, stronger departmental accountability against budgets and targeted investments to reduce infrastructure-related claims such as dangerous sidewalks.

On policing-related liabilities, commissioners asked about mandating liability insurance for officers or alternative financing mechanisms such as liability bonds or social-impact instruments. Mejia said officer-level insurance would likely be prohibitively expensive and that liability bonds had been explored in prior budget cycles but did not proceed because of high interest costs.

Mejia and staff said they plan to share the controller's forthcoming special-fund report next week and will present preliminary audit results to the city administration’s risk-management team when available. The audit’s completion was described as "TBD" during the meeting but could take roughly six months to a year depending on department cooperation.

Procedural notes: the committee approved the minutes during the meeting and adjourned after concluding next-step scheduling. The controller’s office said it would provide additional data via the controller’s public dashboards and the forthcoming special-fund report.