L.A. faces $1-billion deficit by 2013; budget chief calls for pension reforms

Los Angeles could be facing a $1-billion deficit by the time Mayor Antonio Villaraigosa wraps up his second term in 2013, a dire forecast driven primarily by escalating employee pension costs and stagnant tax revenues, the city’s top budget analyst said today.

The grim budget outlook comes a day after the city’s credit rating was downgraded by Fitch Ratings, which will probably make it more expensive for the city to borrow money.

City Administrative Officer Miguel Santana, L.A.'s top budget official, told the City Council that deep, severe cuts to departments and services are unavoidable if the city hopes to repair its finances, and that both the mayor and council must consider creative ways to raise revenue, including privatizing the Los Angeles Convention Center and L.A. Zoo.

Closing the budget shortfalls in the years ahead also will require significant reform of the city pension systems, such as creating a lower tier of benefits for retiring city employees. That would require voter approval, Santana told the council.

“None of these solutions are easy," Santana said.

L.A. faces a $98-million shortfall in the current budget year, and the city will probably be forced to dip into its emergency reserve fund to cover the gap. Such a move would probably lead to another downgrade of the city’s credit rating, he said.

The budget outlook comes even after the mayor and council shaved city spending by more than $300 million this year, mostly by cutting salaries of employees and trimming 2,400 jobs from the payroll though an early retirement program.

“It’s no longer an issue of saving a program or saving a department; it’s about the financial health of the city," said Councilman Bernard C. Parks, chairman of the Budget and Finance Committee.

-- Phil Willon at L.A. City Hall

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Comments

[City Watch]

One big downside mentioned in council session this morning to ERIP (the Early Retirement Program) is the Brain Drain, as many most experienced people as young as 50 take the early retirement deal. It's leaving depts. without the mentors needed to train newer workers, without people who can trouble-shoot and know what they're doing through years of hard-knock experience.

That can cost a lot MORE in some cases, where it takes 2-3 employees to figure out the same job, and takes 2-3 times longer to get the job done or not at all, leaving taxpayers/ "customers" frustrated and unhappier with city services.

ERIP is also being cynically used by some for political purposes. The new city attorney for example, Carmine Trutanich, is hoping to push at least 60 of the dept's 500 or so lawyers into early retirement to get rid of them - he wants to get rid of as many of Rocky's people as fast and soon as possible to bring in people loyal to him who toe his rightwing party line on everything from the medical marijuana issue to fighting the Controller no matter what it costs. Meanwhile decent people are being shoved out or marginalized and made to "retire" even though they may not want to and have a wealth of experience. This is a short-term, one-time solution with significant negative effects.

[sethook]

Any chance Parks will kick back some of his gross retirement payment to help with the shortage? Do you think he will recomend some retroactive cuts. I don't think so. First hog to the trough.

[KK]

The city needs to be run like a corporation. We can't borrow anymore and revenues are not coming in. We will spend our way into bankrupcy.

[jay]

Don't worry Mr Mayor, we voters will approve any scaling back of pensions. Especially the DWP.

[Linda]

It's about time! Voters -- or rather, the TAXPAYERS who foot the bill -- will be delighted to approve all of these cuts and MUCH much more. We have had our pay cut, our IRAs and 401s have taken a beating, and many more have lost their jobs altogether...we sure as heck aren't interested in paying more taxes to support this imperial bureaucracy and its royal retirement benefits. Cut, cut, cut! And when you think you just can't cut anything else...CUT some more!

[Fred]

Cuts are certainly necessary but please realize that many of these workers are not well paid relative to the same position in other sectors and all of them get no other form of contributions

(e.g. there is no matching 401k, etc,.... so while they do get a pension they do not get any matching funds - seems to me to be a bad deal if you die early, a good one if you die late)

[factis]

During the '50's, '60's, '70's, and '80's the politicians were promising the moon and taxing everything big-time to pay for the salaries, pensions and insurance that made "government work" so attractive. Times were fat and nobody cared. Another tax? No problem. I'm makin' plenty. The federal politicians promised jobs and created those jobs by creating whole new bureaucracies. States, counties, and cities followed the federal template and boy! did it ever work great for building up a guaranteed block-voting constituency of Democrats. Now the 'Boomers are retiring in droves and the money is running out all over the place. Those wasteful bureaucratic constituencies are about to get a taste of what the real world is like. Personally, I'll be glad when the air-money runs out. Then maybe we can get back to normal. Maybe. LBJ's Great Society has ruined the character of 3 generations. That's a lot of negative inertia. It will be uncomfortable, inconvenient, and maybe even dangerous for a while. But hey, that's life. The politicians are still promising the moon but what they think is the moon is really a cream pie that is about to hit them in the face. Splaaaat!

[Cut fraud]

Re: comment by Citywatch that Trutanich is forcing people to take early retirement is pure baloney. I'm also taking ERIP, and it is a voluntary program. No one can force you to take it. You can't replace people who leave, since the purpose of ERIP is to reduce the workforce, and as such citywatch's comments are nonsense.

[Bull]

Quoting ..."...including privatizing the Los Angeles Convention Center and L.A. Zoo."

Why, just to continue pouring money into the unsustainable pit of Civil Servant Pensions & benefits ?

Instead of cutting service or selling community-owned assets to fund these ridiculously excessive pensions & benefits, would it not be MORE appropriate to address the REAL problem ... excessive EXPENSES, NOT a shortfall in revenue.

It's way past time to reduce pensions & benefits for future years of service for CURRENT (not just NEW) employees. We are broke NOW, and changing plans ONLY for NEW employees will save nothing for 20-30 years until these new employees retire.

[Julian B Duron]

Cut & Paste from a previously postng of mine:
This crisis was on the train tracks 2 years before this Mayor ran for re-election but he did not raise the urgency until after he was re-elected. This city’s elected officials will term out one day and leave the tax payers of Los Angeles and the conned Coalition of Unions with the check. It is my hope that the Voters of Los Angeles remember this come next election.

[p.f. stone]

Why can't the City of Los Angeles just file for Chapter 11
and then present the bancrupcy court with a reorganization
proposal that jettisons the pension obligations over to the
Federal Pension Benefit Guarantee Corporation (PBGC)?

Isn't that how we saved the airlines, steel mills,
coal mines, shipyards, etc?

[Brian]

Linda,

Calm you ADD. The City employees have taken it on the chin as much as most private employees.

Honestly the biggest problem with City employees is the union and the difficultly in firing the shiftless ones.

[John Gleason]

The city government should focus on law enforcement, fire protection, and street repair. Almost all other activities should be handled by private firms, or not handled at all. Los Angeles is in the midst of a financial crisis caused by its own extravagant spending, over the course of many years. Los Angeles must change its ways, dramatically.

[John Huffman]

Many changes need to be in LA and in countless state and local governments across the US. We cannot continue to live the way we do. Our standard of living is too high and unless we control how it declines, that decline will be driven by unforeseen events.
Read a little about the situation in S. Carolina where I live and see how bad it can get.

[YJ Draiman for Mayor of Los Angeles 2013]

Someone said this might work

I feel bad for many of these folks because this was promised to them. The trade off was suppose to be low pay in exchange for great benefits including gold plated early retirement. The low pay drove high performers to the private sector and created a vacuum of people that would otherwise be on the gov't teet from some angle.

One time payout to the pensioners based on the original actuarial tables of life span/payout (There should be a minimum value for those already exceeding the limit). For employees and retirees not yet drawing from the pension plan, roll the value into a 401K system. This should be financed with municipal bonds which would establish and end date for the funding need.

Set up 401K system for all current and future employees.

All current and future healthcare benefits should be pooled into one high deductible plan with retirees and current workers paying a defined percent of the premium.