LOS ANGELES — A day after a top financial advisor announced Los Angeles is facing a nearly $1 billion gap in the next fiscal year, City Controller Kenneth Mejia Thursday reiterated that long-term reforms are needed to right-size the budget.

Mejia has called for a strategic approach to budgeting, such as a transition to a two-year or multi-year budget cycle and creating a capital infrastructure plan. Recently, he has suggested the exploration of performance-based budgeting and empowering department heads to lead their budgets.

"I look forward to working with the mayor and City Council on long-term structural reforms, so we can give Angelenos the city they deserve," Mejia said in a statement.

"Fixing this can't just be a top down process — we have to include communities from all parts of the city, labor, business and all stakeholders," he added.

On Wednesday, City Administrative Officer Matt Szabo said elected officials will need to address a nearly $1 billion gap in fiscal year 2025-26 that will require tough financial decisions that could lead to thousands of layoffs and cuts to services.

He noted that Mayor Karen Bass' proposed budget is expected to close that gap, but it will require "cost-cutting decisions." Szabo warned that the severity of revenue declines and rising costs created a scenario in which layoffs are "nearly inevitable."

"We are not looking at dozens or even hundreds of layoffs, but thousands," Szabo said. "While layoffs may be necessary, it cannot and will not be the only solution."

Among areas of concern highlighted by Szabo is a $61 million starting gap, which will be exacerbated by $315 million in lower-than-anticipated revenue from taxes, $100 million in liability payouts that are expected to increase, $275 million needed to restore the reserve fund, $80 million related to solid waste fees, and $100 million to cover pensions for members of the Los Angeles police and fire departments.

Szabo attributed the fiscal crisis in part to rising legal payouts in recent years. The CAO previously reported $112 million in payouts, and most recently projected that by the end of FY 2024-25 that expense will increase to $320 million.

As a potential solution, the City Attorney's Office is working with the state Legislature on a bill to cap damages.

Pay raises for city employees are set to begin July 1, the start of the fiscal year, adding an additional $250 million in costs for the city.

After Szabo's presentation, the City Council entered into a closed session Wednesday to discuss the city's contracts with several unionized public employees such as police officers, firefighters, trash truck drivers and librarians.

Elected officials may look to defer the scheduled raises or make other concessions.

In a letter published during the City Council's discussion, Bass said she will  "deliver fundamental change in the way the city operates." She directed the CAO to report to her with strategies to "reduce spending significantly while protecting essential services."

"This year, we must deliver fundamental change in the way the city operates and base our budget on how the city can best serve the people of Los Angeles and to best use their scarce budget dollars," Bass said in her statement.

According to Bass' office, downward economic trends mean the city is projected to take in hundreds of millions of dollars less than previously projected. In addition to these trends, costs associated with the recent wildfires are also expected to add to the burden.

The mayor is expected to release her proposed budget April 21. The City Council will then host multiple budget hearings in which they will hear from department heads about their priorities. Council members will be tasked with making revisions to the proposed budget — which will ultimately need to be approved before the start of FY 2025-26, July 1. 

In the last two years, Bass and the City Council have approved new contracts with unions representing police officers, civilian city workers and firefighters.

In a letter sent out earlier this week, Council President Marqueece Harris-Dawson and Councilwoman Katy Yaroslavsky, chair of the budget committee, outlined their 10 priorities for the upcoming budget deliberations, which include preserving the emergency reserve, covering legal payouts and seeking state relief to address budget shortfalls.

Leading up to the start of the budget process, City Council members are hosting "listening sessions" or events where their constituents can provide feedback on priorities, learn to advocate for their community and help shape the budget.

A representative for Councilwoman Eunisses Hernandez noted that she has hosted such events since voters elected her. She plans to host these events throughout April and possibly in May.

On social media, Councilwoman Ysabel Jurado announced that she will host budget-related events on April 7, 8 and 24 with more details to come.