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L.A. city pension funds shave $90 million in costs

January 26, 2012 |  1:38 pm

Miguel Santana

After taking a long battering in investment markets, two Los Angeles city employee pension funds have produced some good news: They improved their performance during the last fiscal year, helping to shave $90 million in costs off of next year’s budget.

The strong performance by the two funds, combined with increased retirement contributions from the City Hall workforce, will reduce this year’s scheduled payment to the two retirement systems from $948 million to $858 million, City Administrative Officer Miguel Santana said in a report released Thursday. That, in turn, will reduce the size of next year’s budget shortfall to a figure of $150 million to $200 million, he said.

Weeks ago, officials had feared the figure would reach $250 million.

The two pension funds --  one for police and firefighters, the other for civilian employees -- had returns that exceeded 21% during the 2010-2011 fiscal year. Over the last six months, however, those earnings  have been flat, Santana said. That could complicate the budget picture in 2013, when pension costs are expected to exceed $1 billion for the first time.

“The good news is we’re moving in the right direction, but we’re not quite done yet,” he said. “We’ve been in a 12-foot ditch and we have an 8-foot ladder.”

The push to rein in pension costs has been a major part of the budget strategy adopted by Mayor Antonio Villaraigosa and the City Council. In labor contracts reached over the last year, a majority of city workers agreed to devote an additional 2% to 4% of their salaries toward their retirement.

Despite those efforts, plenty of financial issues lie ahead. Much of the pension savings will be consumed by a package of employee salary increases, which go into effect July 1 at a cost of roughly $75 million, Santana said. At least $100 million in personnel expenditures have been postponed by Villaraigosa and the City Council until future years, including unused sick time and police overtime.

One union contract, approved last summer, allows officers at the Los Angeles Police Department to receive up to 800 hours of deferred overtime pay when they resign or retire -- up from 96 hours four years ago. Civilian workers are now allowed to bank up to 896 hours of unused sick time, payable when they leave city employment. And taxpayers will be paying until 2024 for an early retirement program that took 2,400 people off the city payroll.

Santana said the city needs to reach a point where its budget is not so dependent on the fluctuations of the stock market, which determine the investment returns of its pension funds. He said he will recommend in coming months that employees, both sworn and civilian, contribute more toward their healthcare.

“If we ever want to get out of crisis mode, we have to address our ongoing deficit -- the gap between revenue and expenditures,” he said.

The reduced payment to the pension fund is also the result of actions taken by the nine-member civilian pension board. Three months ago, Villaraigosa’s office persuaded the board to spread out over five years its decision to lower the fund’s long-range projection of investment return from 8% to 7.75%. In addition, the board reduced its projection of medical cost inflation.


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-- David Zahniser at Los Angeles City Hall

Photo: Los Angeles City Administrative Officer Miguel Santana. Credit: Don Bartletti / Los Angeles Times