As area leaders take stock of the long-term implications of this month’s Los Angeles area fires, they should consider the local government fiscal impact. Los Angeles County, the city of Los Angeles and Malibu can expect to take revenue hits from the conflagration and should budget accordingly.
Over 12,000 structures have been damaged or destroyed around the county, severely reducing their market value. Depending on when they were last assessed, many will also see significant losses in their taxable value as well.
According to Auditor-Controller records about 26 percent of ad valorem taxes paid by Pacific Palisades property owners go to the city of Los Angeles. By contrast the city of Malibu receives only about 7 percent of property taxes paid by local property owners. Finally, because Altadena is unincorporated, the lion’s share of its residents’ property tax revenues (over 30 percent in many tax rate areas) go to the county.
The city of Los Angeles likely faces the biggest proportional revenue challenge as a relatively large percentage of its tax base has been impacted. Determining the exact revenue hit will take time as we learn how much value each property has lost and to what extent those losses will be absorbed by the cushion between taxable and market value for properties that have not changed hands recently.
But the value losses will transcend property damage. Even properties that were not physically damaged will suffer reduced valuation by virtue of being in a now less attractive neighborhood. The biggest impact will be on retail properties like Rick Caruso’s Palisades Village (assessed at $152 million), because they will now have fewer potential customers.
Once structures are repaired or replaced, they should return to something approximating their pre-fire values, but it is likely that overall assessed values will remain below their original trendline for many years to come (if not permanently).
One way for the city to make up for property tax revenue losses would be to upzone Pacific Palisades to allow more density. Replacing a single-family home on a large parcel with an apartment building should increase the overall assessed value of that parcel. But upzoning will face opposition from neighborhood homeowners and the controversy could retard the rebuilding process.
While the city of Los Angeles will face depressed revenues, it should also expect pressure to increase public safety spending. Given concerns about the initial fire response, many residents will support more spending on the fire department. Worries about arson and looting will intensify pressure for more police spending.
Going into the crisis, LA city finances were already constrained. California Policy Center’s fiscal dashboard shows a “C” rating for Los Angeles based on its 2023 audited financial data. LA’s grade was constrained by the city’s relatively high level of unfunded pension liabilities.
In 2024, the city struggled with deficits, passing what Councilmember Bod Blumenthal called a “bare bones budget”. In October, the Council was obliged to commit an extra $183 million for liability claims, a number that will likely rise given allegations of city negligence in addressing fire risk.
More taxes could balance the budget, but Angelinos are already heavily taxed. High income taxpayers living in Pacific Palisades might see a tax increase as the last straw as they debate whether to rebuild and remain.
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Both the city and county should instead ask voters for permission to divert special tax revenues to the general fund. For example, city voters approved Measure ULA in 2022 which increases real estate transfer taxes on high-value properties to fund tenant protection programs. Rather than budget for such programs at the ballot box, the city council should have discretion over the revenue.
Similarly, some of the county-wide 2017 Measure M transportation sales tax funds are being earmarked for a 54-mile high-speed rail link between Palmdale and Victorville intended to connect future Brightline West service with California High-Speed Rail. Since the latter may never be completed, this line could prove to be a very expensive and little used spur. That money could better be directed to supporting local government operations throughout the county.
Voters and political leaders around Los Angeles have supported expansive government for decades. The result is a bloated public sector that too often struggles to provide basic services. The aftermath of the January fires provides an opportunity to rein in local government, so that it does a few things both well and within budget.
Marc Joffe is a Fellow at California Policy Center.