The 'b' word, or 'bankruptcy,' was first used provocatively in association with Los Angeles by former mayor Richard Riordan in a controversial editorial in the WSJ in May of 2010. But now the city's own Chief Administrative Officer, Miguel Santana, has raised the prospect that the City of Angels could indeed be heading for insolvency unless it does something to grab control of employee costs, including pension costs. In a stunning new report issued on Friday, Santana projected that even with an improving economy the city faces a rising deficit, which could hit $427 million by 2014 (see chart below).
At the heart of the city's problems are soaring employee costs. The four big drivers of the budget--healthcare premiums, retirement costs, workers comp and base pay--are projected to grow by nearly $1 billion over the next 5 years, while tax revenues will increase by just $675 million (see chart below). That will produce steep deficits in every year.
The report asks for a series of givebacks from employees, including contributions to health care and elimination of contracted raises that are scheduled in upcoming years. But the city also needs pension reform to cap costs. In 2008 the city spent $666 million on pensions. By 2015 it is projecting that cost will nearly double to $1.21 billion.
The report marks further bad news for LA taxpayers. The city's budget woes are so steep, the CAO report says, that it's no longer feasible to close budget gaps just with cuts without risking basic services like police and fire protection, so the report recommends some $150 million in new taxes."We're facing the complete devastation of city services, including public safety," he told the LA Times.
To show how serious he thinks the situation has become, Santana begins the report by rehearsing the scenarios that led to insolvency in Vallejo and Stockton, two other California cities. Vallejo spent several years in bankruptcy and Stockton officials have said the city is insolvent and suspended bond payments while they negotiate with lenders.
The report asks for a series of givebacks from employees, including contributions to health care and elimination of contracted raises that are scheduled in upcoming years. But the city also needs pension reform to cap costs. In 2008 the city spent $666 million on pensions. By 2015 it is projecting that cost will nearly double to $1.21 billion.
The report marks further bad news for LA taxpayers. The city's budget woes are so steep, the CAO report says, that it's no longer feasible to close budget gaps just with cuts without risking basic services like police and fire protection, so the report recommends some $150 million in new taxes."We're facing the complete devastation of city services, including public safety," he told the LA Times.
To show how serious he thinks the situation has become, Santana begins the report by rehearsing the scenarios that led to insolvency in Vallejo and Stockton, two other California cities. Vallejo spent several years in bankruptcy and Stockton officials have said the city is insolvent and suspended bond payments while they negotiate with lenders.
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