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Sitting down? L.A. budget shortfall may near $1 billion

February 27, 2009 |  4:11 pm

Los Angeles could face nearly a $1-billion shortfall in the 2010 budget year because of a mammoth bailout needed for the city’s pension funds, which have seen investments tank because of the spiraling national recession, according to city budget report released Friday.

The grim forecast of a $983-million budget gap comes as Mayor Antonio Villaraigosa already considers widespread city layoffs and deep cuts to services because of the city’s worsening financial crisis, as well as  a plan to raise hundreds of millions of dollars by leasing out city parking garages and meters.

The city’s top budget analyst, interim City Administrative Officer Raymond Ciranna, informed the mayor and City Council that Los Angeles faces a $427-million budget shortfall in 2009-10, driven primarily by declining tax revenues and increases in employee pay and benefits.

The budget gap would more than double in the following year because of the troubled pension system, and the two-year price tag of the pension bailout would be enormous, costing $458 million in 2010-11 and $663 million in 2011-12.

"We are looking at some very difficult times ahead," Ciranna said. "We’re going to have to make some major structural changes."

The Los Angeles City Employees' Retirement System, known as LACERS, and the city's Fire and Police Pension System are expected to sustain combined investment losses of 25% in the current budget year, and have flat returns in the following year, Ciranna said.

The losses could be softened if Wall Street rebounds in the next four months, although that it not expected. The city also could extend the standard five-year time period it normally uses to absorb such losses, he said.

—Phil Willon