In January, the city of Los Angeles (LA), which suffered the worst wildfire damage, is facing a $1 billion deficit (about 1.45 trillion won) and the risk of thousands of layoffs. LA is preparing for the 2028 Olympics, and the burden of wildfire recovery expenses, coupled with a decrease in tax revenue due to a tourism downturn, has created a financial emergency.
On the 19th (local time), according to The New York Times (NYT), Mayor Karen Bass of LA acknowledged the financial crisis in a recent budget report, saying it would bring about a fundamental change in how LA operates. Chief Administrative Officer (CAO) Matthew Sabow compared the current financial difficulties to the worst crisis since the 2008 financial crash, noting that "immediate expenditure reductions are needed, and we must prepare for further cuts."
The wildfires in January destroyed thousands of dwellings and commercial facilities, leaving the largest damage in LA's history. This has led to a surge in reconstruction expenses, increasing the city's budget burden. According to NYT, the costs due to the wildfires, including overtime for firefighters and police officers and infrastructure replacement expenses, amount to $282 million (about 41 billion won).
Additionally, environmental damage from the wildfires has caused a sharp decline in the number of tourists, dealing a significant blow to the tourism industry. LA is a city that attracts millions of tourists each year, and the tourism industry has been a major pillar of the local economy. However, the number of tourists has dropped by more than 30% compared to the previous year since the wildfires, which has a cascading effect on related industries such as hotels, restaurants, and retail.
Policies from the Donald Trump administration, including tariffs and immigrant deportations, also affected the decline in tourists. Tourists from Canada, Mexico, and China have historically been LA's largest "guests," but they have been targeted by the Trump administration, fostering animosity that negatively impacts the tourism industry, according to NYT.
LA City Inspector General Kenneth Mejia highlighted in a report earlier this month the causes of LA's financial crisis, citing the fire damage, surging disaster insurance costs, and uncertainties arising from the Trump administration's tariff policies, federal spending cuts, and immigration policies.
As expenses increase, tax revenue is expected to decline. The city of LA primarily operates through property taxes, corporate taxes, sales taxes, and hotel taxes. Due to fire damage, property tax revenue is anticipated to decrease as properties have been burned. With the local economy and tourism industry in decline, decreases in corporate taxes, sales taxes, and hotel taxes are also inevitable. Authorities noted that "the largest factor contributing to the $1 billion deficit is a tax revenue decrease of about $315 million (approximately 46 billion won)."
This financial crisis could also impact preparations for the 2028 Olympics. Significant budgets must be allocated for infrastructure development and facility improvements for the Olympics, but there are concerns that planned investments may be delayed or scaled back due to the current financial situation.
In response, the city of LA is discussing workforce reductions to balance its budget. Currently, LA employs about 50,000 public servants, and due to this financial crisis, discussions are underway to reduce the workforce by up to 5,000. NYT stated, "Overcoming this crisis requires not only short-term budget cuts but also long-term and fundamental economic recovery strategies."