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Former L.A. Mayor Riordan warns of city bankruptcy risk, says labor costs must be slashed

May 5, 2010 | 12:40 pm

Former Los Angeles Mayor Richard Riordan tries to turn up the heat on city workers in a commentary on the Wall Street Journal’s op-ed page Wednesday, warning that L.A. “will likely declare bankruptcy” within the next few years if labor costs aren’t slashed.

Riordan, 80, also lambastes Mayor Antonio Villaraigosa and the City Council, saying they have been “either unable or unwilling” to face the city’s “terminal fiscal crisis.”

Riordan It was Villaraigosa, however, who was warning in March about city bankruptcy amid his fight with the council over proposed Department of Water and Power rate hikes. The mayor also is seeking to scale back pensions for police officers and firefighters (a move that needs voter approval) and reduce pension benefits for newly hired workers, ideas that Riordan echoes.

Public-worker pension benefits have become a hot-button issue in California this year, of course, as the state and many municipalities grapple with falling revenue while projected benefit costs have ballooned.

The Journal op-ed piece, bylined by Riordan and Alexander Rubalcava, who heads an L.A. money management firm, contends that the city’s financial woes are rooted in overly optimistic assumptions about its pension-fund earnings and in continuing additions to city payrolls in recent years.

Riordan lists five policy changes to hack labor expenses and put L.A. “on the road to recovery.” From the Journal piece:

--- Defined-benefit pensions must be replaced with 401(k) accounts for new employees.

--- Current employees must pay much more than 6% (or 9% in the case of public safety employees) of their salaries for their pension benefits. At a time when the city is contributing over 25% of payroll to the pension funds, this is only fair.

--- Increase the retirement age to 65.

--- Reduce city staff back to 2005 levels. Since the police and fire departments represent more than 80% of the city budget, they must also be forced to run more efficiently.

--- Eliminate the $300 million spent on costly retiree healthcare benefits. City workers who retire before they are eligible for Medicare enjoy health insurance subsidies of up to $1,200 a month, courtesy of Los Angeles. We can no longer afford to subsidize these Cadillac plans.

-- Tom Petruno

Photo: Former L.A. Mayor Richard Riordan. Credit: Annie Wells / Los Angeles Times