Nobody Is Going to File. That's the Problem.

Part III of III

This Is Not the 1984 Deal

Under the host city agreement, Los Angeles pays the first $270 million of any Olympic cost overrun. The state pays the next $270 million. Past that — no ceiling, no cap, no second guarantor — the bill is the city's alone.

LA28, the private organizing committee, is required to post a $270 million contingency fund. That sounds like a shield in front of the city. It isn't one. The city controls that fund, and it is the same $270 million the city is already on the hook for in the first tier. LA28 isn't standing between Los Angeles and the risk. The city is guaranteeing itself, and calling it a safeguard.

The city knew better once. In 1984, when the IOC wanted a city guarantee the way Montreal had given one, Tom Bradley refused. He let the IOC walk instead — and it blinked, making a private organizing committee and the U.S. Olympic Committee the guarantors instead of the taxpayers. Voters backed him three to one. Those Games cleared more than $230 million, with zero dollars of city exposure.

This time nobody made the IOC blink. The city signed for the first dollar of every overrun, uncapped past $540 million, and never put it to a vote.

Twenty-four months out, that open-ended guarantee sits on the same balance sheet as the fire litigation, backed by the same three weeks of cash.

The Bill Nobody Has Priced: 4,000 Officers

Jim McDonnell, the Chief of LAPD, says policing this city properly takes 12,500 sworn officers. As of late July, he has 8,551 — a gap of roughly four thousand, and the lowest deployment in a quarter century.

Los Angeles runs about 2.2 officers per thousand residents; New York and Chicago run four to four and a half. Attrition takes 500 to 600 a year. The June academy class graduated twenty-six. The adopted budget funds 510, which, against that attrition, holds the department at roughly where it started. Bass campaigned in 2022 on rebuilding to 9,500; in April she said it plainly: "My goal changed, unfortunately. I do hope that one day we get to the expansion, but we are not there now."

The goal is no longer growth. The goal is to stop shrinking.

Whatever figure you use for a fully loaded sworn position — salary, benefits, pension, overtime, equipment — four thousand officers is a recurring obligation in the high hundreds of millions a year, every year, for as long as anyone reading this is underwriting buildings here.

Here is where it gets uncomfortable, and it is what Part II set up. In May, the city kept its gross receipts tax — a repeal had qualified for the November ballot, and the business coalition withdrew it in a trade. The roughly $830 million that tax raises is still there. It was fought for and won.

And the police force the chief says this city requires costs about the same as the tax the city just fought to keep. The money is in the building. The force is not. This is no longer a revenue problem you solve by finding revenue. The revenue showed up, and the force still did not.

The chief says 12,500. Mayor Bass, who ran in 2022 on rebuilding to 9,500, now funds a department that holds at roughly 8,555 and calls it stability. Her leading challenger this November, Nithya Raman, was elected to the council in 2020 promising a smaller, more specialized force — and now says the department can't shrink any further either. Two candidates running against each other, for opposite reasons, land on the same number: 8,555.

Neither has a plan to close the other four thousand — and neither has said where the money would come from if they did.

The Olympics do not wait for it. LAPD expects to supply about 2,400 officers to the Games. Its own commanders say the city's venues alone need twelve to fifteen thousand, with 24,000 to 30,000 drawn from across the state. A department that cannot hold its own headcount is the anchor tenant of a security operation five times its contribution.

The Part That Shows Up in My Own P&L

Here is where I stop citing documents and tell you what I see from the operating side, because the cost of an unsafe city is real and almost nobody puts it in a budget.

When a public system doesn't deliver, the private market buys the service twice. Owners hire security. Tenants demand it in the lease. Retailers staff for shrink instead of sales. Restaurants pay for valet because customers won't walk two blocks. Every one of those is a line item on somebody's operating statement, and every one is a second tax — paid by property owners, on top of the property tax, for a service the property tax already funded. It doesn't appear in the city budget. It appears in ours, and it goes straight into what a building can charge and what it's worth.

I've signed those invoices. So has every operator reading this.

Now put the Olympics on top. The 2028 Games are planned car-free — no parking at any venue. Spectators will have to use a transit system Angelenos have spent a decade avoiding, and Metro's answer is a dedicated police force it hopes to have fully deployed by 2029.

The security force for the system that has to carry the Olympics arrives the year after the Olympics.

Metro is not wrong that crime is down — overall crime fell 13.6 percent in March, and the World Cup drew nearly 50,000 rail trips for a single match. That's real progress. But a system's value depends on whether people will use it, not whether the statistics say they should. Billions of dollars of rail only pay off if riders show up, and perception is the asset that was destroyed. You cannot rebuild it in twenty-four months with a police force that arrives in thirty-six.

And the Money We Cannot Even Find

A city with three weeks of cash cannot afford to spend money it cannot trace.

A court-ordered audit by Alvarez & Marsal examined roughly $2.3 billion of homelessness spending from 2020 to 2024 and could not determine where much of it went. LAHSA — the joint city-county authority administering most of it — never verified whether the services it was invoiced for were actually provided. Then it became a cash problem: in June, federal housing officials suspended funding to LAHSA over fraud and control failures, after the region had taken in close to a billion federal dollars since 2021. The city sends roughly $320 million a year of its own general fund into that system.

I am not making a policy argument about homelessness. People are suffering on the street and the city has an obligation to address it. I am making a balance sheet argument: when the federal money stops, the obligation does not.

So count what is standing in line at the same account. A fire judgment nobody will size. A police force four thousand short. A homelessness system the federal government just stopped funding. A liability run rate that has outrun its own budget for years. Four claims, one general fund, three weeks of cash.

Nobody Is Going to File. That's the Problem.

Let me be precise, because "bankrupt" is a word people reach for and then hide behind.

I don't think Los Angeles files for Chapter 9. It has an enormous tax base, California makes municipal bankruptcy slow on purpose, and the political system will find money somewhere before it finds a courtroom. Bankruptcy would at least end in a plan — a number, a schedule, somebody forced to say out loud what the city can afford. That is not what is coming. What is coming is a decade of a city that still holds meetings, still passes balanced budgets, and quietly stops doing things.

The test that matters isn't legal, it's the one a lender applies: an entity is insolvent when it can no longer absorb an ordinary bad outcome without borrowing or cutting the things it exists to do. Not a catastrophe. An ordinary bad year.

By that test Los Angeles is already there. Lose a meaningful share of the fire litigation and the reserve is gone in a single wire transfer. Get an earthquake or a bad fire season before federal and state money arrives — and it always arrives late — and the city funds the response from an account it can drain in a month. Get a summer of civil unrest with sustained overtime and property claims, and the same account absorbs it. There is no ARPA coming this time.

Any one of those is survivable. Two is not. All of them are live right now.

So How Do the Chips Actually Fall?

Everybody pictures a moment — a takeover, a receiver, someone from outside walking into City Hall with authority and a mandate. That is not how it works, and understanding why is the whole point of this piece.

It will not be the federal government. Congress created a control board for Washington, D.C. in the 1990s, but D.C. is a federal district Congress governs directly. Los Angeles is a chartered city of California, and Washington has no standing to take it over. Even in bankruptcy, Section 904 of the Bankruptcy Code forbids the judge from interfering with the debtor's political powers, property or revenues without consent. No trustee, no forced asset sales, no ordering a tax. A Chapter 9 judge is the weakest court in America relative to its debtor.

It will not be the county. Los Angeles County has no authority over a charter city, and it has its own problem: the $4 billion abuse settlement, the department cuts, the first rainy day draw since 2009. In the fire litigation the county isn't a rescuer. It's a co-defendant.

It could be the state, but only if the Legislature builds the machine first. California has deliberately chosen not to have one. Michigan appoints emergency managers. Pennsylvania has Act 47. California's posture is hands-off home rule: it already gave cities the tools, and the tools are a fiscal emergency declaration and the ability to file for bankruptcy.

If Sacramento ever did intervene, the template is New York in 1975: a Municipal Assistance Corporation to refinance the debt, then an Emergency Financial Control Board chaired by the governor, holding veto power over the city's budget, contracts and borrowing. It lasted until 1986. That is what a rescue costs. Money for sovereignty, and you don't get the sovereignty back for a decade. It also takes an act of the Legislature, and Sacramento is running its own deficits. The honest answer to "will the state step in" is: only if the alternative frightens Sacramento more than the price does.

Which leaves the courts — and this is the part almost nobody sees coming.

Control does not get seized. It gets transferred, one judgment at a time, through a statute most people have never read.

When a plaintiff wins a money judgment against a California city, the remedy under Government Code section 970.2 is a writ of mandate — a court order compelling the city to pay. Section 970.4 requires the city to pay out of whatever unappropriated, unrestricted money it has in the year the judgment becomes final. Section 970.8 requires the city to include in its budget, every single year, funds sufficient to pay all judgments against it.

There is exactly one escape hatch. Under section 970.6, a court will order payment in up to ten equal annual installments — but only if the council first adopts a resolution finding that paying now would cause unreasonable hardship, and a judge, after a hearing, agrees. With interest running the whole time.

The city's own way out is to go into open court and plead poverty on the record. And the moment a judge is setting a ten-year schedule that must be funded ahead of anything discretionary, the council is no longer deciding a budget. It is servicing a court order and allocating whatever survives.

Nobody takes over. No one is appointed. The council still meets, still votes, still issues the press release about the balanced budget — and somewhere in the document is a line item a judge put there, which cannot be moved, and which gets funded before the pothole, the tree trimming, the library hours and the police academy class that was supposed to start in January. That is what losing control looks like in practice — not a seizure, a schedule.

The Draconian Menu, in the Order It Gets Served

We know the order because the city wrote it down. This spring, when the gross receipts repeal was still on the ballot, the City Administrative Officer modeled what an $860 million hole would do. The measure came off the ballot in May. The playbook did not.

First the reversible things: hiring freeze, cancel the academy classes, dis-encumber contracts, defer capital projects. Then a declared fiscal emergency to unlock extraordinary budgetary controls. Then reopening every labor agreement to cancel scheduled raises. Then eliminating filled positions — layoffs, which the city knows from 2025 arrive slower and cheaper than promised.

Then it hits the wall, and this is the part that survives any particular ballot measure. The Charter mandates minimum funding for the Library and for Recreation and Parks. Police and fire already run more than sixty percent of unrestricted spending. And on this November's ballot is a half-cent sales tax for the fire department — about $345 million a year, taking the city's sales tax to 10.25 percent — carrying a maintenance-of-effort floor: let fire funding slip below its ten-year average share and the city cannot levy the tax at all.

Every protection you add makes the unprotected slice carry a larger cut. The city's own modeling this spring had the Police Department absorbing $376 million in one scenario and over $450 million in another. That scenario died with the repeal. The arithmetic underneath it did not.

At the end of that road is Chapter 9, where California built a specific door. Under Government Code section 53760, a city may only file after a sixty-day neutral evaluation with creditors, or after declaring a fiscal emergency by majority vote at a noticed hearing, with findings that it cannot pay its obligations within sixty days.

Note the phrase. "Fiscal emergency" is the same term the CAO already had drafted this spring. Two different instruments — one unlocks spending controls, the other requires a finding of insolvency. What they share is a name, a drafter, and a reason to exist.

And Chapter 9 doesn't do what people think. Vallejo went in in 2008, established that a city can reject its labor agreements and cut retiree health care, and came out three and a half years later still struggling to balance a budget. Stockton's judge ruled CalPERS pensions could be impaired — and Stockton didn't do it, because pensions are the biggest creditor and the hardest politics in the room. San Bernardino spent the better part of a decade in court. Across all three, bondholders and retirees take the loss, pensions survive, and the city comes out with worse credit and the same structural problem. You don't restructure a city the way you restructure a company. There is no one to sell it to.

So the answer to "when do elected officials lose control" is not the day someone files. There is no such day. Control is lost the moment the discretionary share of the budget gets small enough that the decisions stop being decisions.

Charter minimums are not a choice. Labor agreements are not a choice. Pension contributions are not a choice. Debt service is not a choice. A court-ordered judgment is not a choice. Everything else is — and everything else is what a mayor and fifteen council members are actually elected to decide.

And for a decade, they haven't decided it. They've punted it. Every budget season the same reversible things get cut first — a hiring freeze here, a deferred project there — and every hard choice about headcount, about which services this city can actually afford to run at their current size, gets pushed to next year's council and next year's mayor. Los Angeles has been shrinking the everything-else for a decade by pretending it wasn't a decision. It is down to three weeks of cash, a judgment it cannot size, and a police force it cannot fund.

Nobody is going to walk into City Hall and take the keys. They won't have to. By the time anyone thinks to look, there will be nothing left in the drawer to take.

So What Would Actually Work

I've spent three pieces describing a problem. It's fair to ask what I'd do — and fair to say plainly that none of it is comfortable, because the comfortable options ran out a few budget cycles ago.

Start with the premise. A city that cannot make people feel safe and cannot let a business earn a return does not have a revenue problem it can tax its way out of. It has an exit problem. Every company that leaves takes its business tax with it, and eventually the property tax too. Safety and viability are not competing line items against fiscal responsibility. They are the fiscal plan.

Stop taxing gross receipts. Tax net. A tax on revenue rather than profit punishes low-margin businesses, punishes a business having a bad year, and rewards the ones that can leave. The answer is not a lower rate on the same base. It is a different base. Tax what a business actually earns, the way the state and federal government do, and let the city argue about the rate like everybody else. Phase it over three to five years and publish the offset schedule alongside it.

Fund public safety first and cost it honestly. If the number is 12,500, publish what it costs — recurring, fully loaded, pension-inclusive — and the specific reductions that pay for it. If the city can't get there, say so and tell people what 8,551 buys. What isn't acceptable is another decade of promising a number nobody funds, then paying for the shortfall in overtime, response times and private security.

Be honest about where the offsets are. Homelessness spending is the right accountability target — $2.3 billion auditors couldn't trace makes that obvious — but the city's own contribution is roughly $320 million, much of it court-supervised or federal pass-through. Zeroing all of it doesn't come close to covering a police buildout. Anyone who tells you the homeless budget pays for this is selling you something.

The money is in payroll, and that is the decision nobody on the council wants to be the one to make. The city carries about 34,000 full-time employees, and this budget alone adds $343.6 million in obligatory compensation increases. Pensions and debt service already consume roughly a sixth of the general fund. Freeze the escalators. Reopen the agreements. Cut civilian headcount outside public safety and consolidate departments that have duplicated back offices for forty years. This city is going to have fewer employees doing fewer things, on some timeline, one way or another — the only choice left is whether the council picks the timeline or a judge does. It is unglamorous, it is a brutal fight with people who turn out votes, and there is no version of this that works without it.

Budget liability honestly — and give credit where it's due. For five straight years the city budgeted $87 million against payouts that reached $287 million. This year it finally moved, funding $210.4 million plus a $20 million reserve. That is real progress. It is also still short of the run rate. Attack the causes — sidewalks, fleet, training — because prevention costs less than judgments.

Term out the fire exposure now, before a court does it. LAUSD did it. The county did it. The city has an unquantified judgment and no structure on the table. It will cost something in the rating. It costs less than a judge setting a ten-year schedule.

Rebuild the reserve to the ten percent the city's own policy already requires — and stop counting one-time appropriations into it as discipline.

None of this is ideological. Every item is available to a mayor of any politics, and all of it is arithmetic a CFO would recognize on the first read. The only thing standing between Los Angeles and any of it is a council and a mayor's office that keep choosing the next election over the next decade.

What This Means if You Own Something Here

For those of us who own and operate buildings in this city, the practical consequence is that you can no longer underwrite the asset without underwriting the city.

It shows up as permitting timelines and inspection staffing. As streets and sidewalks in emergency-only status. As services degrading in exactly the neighborhoods where you are asking a tenant to sign ten years. And most of all as the near-certainty that a city short on revenue and long on obligations will reach for the only base it can actually reach — property, and the transactions in it. It has done it twice in four years. It will do it again.

That is the real risk in a Los Angeles pro forma now. Not the rent roll. Not the cap rate. The municipality.

And if you own here and have not looked hard at your Proposition 8 position — on the building, on the house, on the portfolio — look. Not because it fixes anything. Because the city's forecast quietly assumes you won't.

Affection is not underwriting. Every fix above was available four years ago, and every year the council punts, the arithmetic gets harder.

Nothing in these three pieces is a forecast. The reserve is $515 million today. The demurrer was overruled in February. The mains broke this month. The repeal came off the ballot in May and the tax stayed. All of it has already happened — and the people who will tell you it's manageable are the same ones who called $515 million against a multi-billion-dollar judgment stability.

A budget tells you what a city intends. A balance sheet tells you what it can survive. Los Angeles has published the first every spring for a decade. It has never once published the second. At some point the people running this city are going to have to choose what it actually looks like — smaller, or insolvent. Every year they don't choose is a year they chose for us.

— Christopher C. Rising