Jewish Journal


April 14, 2010

A Bankrupt City?


The numbers are staggering, in fact, overwhelming: the City of Los Angeles’ annual pension and retirement health benefit bills (just for police and fire) will escalate over the next five years from $423 million to $1 billion.  That makes the paltry few million dollars shortfall that the city is being tied in knots over today small change.

A few months ago we blogged about the appalling absence of local leadership as the city budget projections kept getting worse and worse and our leaders’ responses ever more inadequate,

Last week, the Council—-to the amazement of most observers of the local scene—-failed to cut the city budget despite the Mayor’s and the city’s Chief Administrative Officer’s (“CAO”) unquestioned warning that financial disaster was imminent. There is a budget gap of $218 million for this fiscal year and a projected $484 deficit for next year.
The CAO urged that 1,000 jobs be cut—-there is virtually no other place to find the savings necessary to keep us solvent. There is no question as to the scope and depth of the crisis—-everyone acknowledges it. There is only a shocking unwillingness on the part of a large majority of the council to demonstrate the political backbone to make very difficult and, possibly, unpopular choices.

The immediate short-term fiscal crisis may have been averted because of new found revenue for this year. But that doesn’t address the structural problems that the pensions present.

Amazingly, there are few voices speaking out about what is going to happen to our city in very short order. Today’s

LA Times

features a commentary about Community Advocates’ chairman, former Mayor Richard J. Riordan, one of the only leaders willing to talk honestly about what LA’s future looks like if things continue as they are and the pension crisis remains unresolved.

As he told the


, “We need some adults to come alive in the city and talk through how to meet that liability…if that doesn’t happen we shouldn’t rule out bankruptcy.” Riordan warned the

Daily News

, “the city, the way it is going, is unsustainable. “

I recall a presentation that Riordan sponsored at the Los Angeles Chamber of Commerce several years ago with graphs laying out the city, county and state’s pension obligations over the next decade. Those graphs were set against the projected incomes of the governmental entities at a time when 8% annual return on investments didn’t seem irrational. Even then, Riordan warned that the likelihood of these entities not being able to meet their pension obligations and fund their other governmental duties was real and demanded honest talk.

It has been astounding to see how little attention has been paid to the issue until the past few months. In February the Pew Center on the States published a comparative study of the pension obligations of the 50 states set against the funds the states have set aside to pay those bills, their findings don’t inspire confidence—-a trillion dollar gap:

“While the economic crisis and drop in investments helped create it, the trillion dollar gap is primarily the result of states’ inability to save for the future and manage the costs of their public sector retirement benefits,” said Susan Urahn, managing director, Pew Center on the States.  “The growing bill coming due to states could have significant consequences for taxpayers—higher taxes, less money for public services and lower state bond ratings.  States need to start exploring reforms.”

Clearly, we are not alone.

Whether the answer is bankruptcy, changing the retirement structure going forward, or even discussions with unions to alter the plans presently in place—-the failure to be forthright about the dire circumstances we face is not an option.

Yet the LA City Council dithers. In January it defeated an effort to place a measure on the June ballot to roll back benefits for newly hired city workers and future hires. Mayor Villaraigosa’s spokesman said, “this is not the time to panic.” He and a representative of city council president, Eric Garcetti, said they thought they could achieve more by negotiating directly with the unions that represent civilian city employees. Lots of luck, the city’s unions were even opposed to the January measure that was aimed at future hires.

The time for kicking the can down the road and hoping for some other level of government to take their chestnuts out of the fire is past. Virtually every level of government faces the same stark choices. As the Pew Center wrote, it’s time to “start exploring reforms”—-however painful that may be.

Mayor Riordan may be the only local leader telling it like it is and acting like an “adult.”


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