L.A. Bankruptcy Inevitable, Though Probably After Mayor Antonio Villaraigosa Leaves To Become A Male Spokesmodel

Marc Lacter's column in Los Angeles magazine looks at whether the city of Los Angeles is headed for bankruptcy, and it's not pretty.

His diagnosis: We're headed there, though probably not until after Mayor Antonio Villaraigosa leaves office.

As it now stands, a typical L.A. police officer or firefighter can retire at 55 and receive up to 90 percent of the salary made in the last year of employment. For life. Plus free health care, also for life. So if you put in 30 years on the job and live an additional 30, the city is essentially bankrolling almost two full salaries, pre- and postretirement. Other city employees enjoy nearly the same benefits. It's quite the arrangement, and it's untenable.

Welcome to Greece! (Read Michael Lewis' great piece on Greece.)

Currently one out of six of the city's general fund dollars goes to pensions, but by 2014, it could be one out of three.

The problems began in 1984, when a state voter initiative lifted restrictions on what investments were available to public pension funds. They had been putting pension money in safe investments, such as bonds, but with the lifting of the restrictions, they were given a fistful of dollars and sent into the giant casino otherwise known as Wall Street.

For awhile, it worked out great, as the public pension funds were getting great returns. In turn, the public employee unions demanded better benefits, and the city was able to reduce the money it had to pay every year to meet its pension obligations.

But since 2000, investment returns have stagnated. That combined with larger and larger obligations means that now, even if the city gets its expected 8 percent return, which seems wildly optimistic, the reckoning is coming.

(Former Mayor Richard Riordan has issued his own alarms, as we've noted here.)

Miguel Santana, the city's chief budget honcho, doesn't foresee bankruptcy because, as he says, "bankruptcy is what you do when you have no other options, and the city has a lot of other options."

But this feels a little like when Tony Soprano fears his friend Big Pussy has become an FBI informant and shows up at his house to feel him out. "Puss: You got options."

So what are the city's options, exactly? Well, there's massive cuts in services, including libraries and parks, which will make this year's cuts seem generous by comparison. And ultimately, police and fire can't and won't be spared.

"I think it's a legitimate concern," Santana tells Lacter.

The other option: Big tax increases. But in a depressed economy in a city already not known as particularly business-friendly (aside from a few favored developers), this puts you in downward spiral. Read Buzz Bissinger's fantastic account of Philadelphia's then-Mayor Ed Rendell's first year in office, "A Prayer for the City," to get a sense of how once great cities atrophy like a decaying body, staggering from one crisis to the next, bleeding money and population.

Wait, you ask, why can't we just tell the retirees they aren't getting what we'd hoped to give them? For one thing, many people have planned their lives according to our promises, so the ethics are problematic. (And in truth, despite all the noise about Robert Rizzo and outrages in places like Bell, many if not most pensioners are receiving modest sums after a lifetime of service.)

The problem is that state law requires any cut in pension benefits to be accompanied with a new benefit of equal value.

So, Chapter 9 bankruptcy. Congress created the chapter of the bankruptcy code during the Depression to allow broke cities to reorganize, which is another way of saying renegotiate contracts. Essentially, a bankruptcy judge will mediate between the city and the unions and come up with contracts that will bring the city back to solvency. It will be ugly,and politically disastrous for everyone involved, unless, perhaps, a new mayor makes it his or her first move.

So, now, the fun part of blogging: Playing the blame game!

This isn't really a partisan issue here or statewide or across the country. Republicans have been eager to win the endorsement of police and fire unions, to march in parades with bagpipers, so they've been complicit in this fiscal myopia.

But progressive Democrats really need to ask themselves when exactly in the movement's admirable history, which has been a story of trying to bring equality and dignity and decent health care and education to all people -- when exactly did the moment arrive when overly generous compensation packages for public employees became such an overriding and all-consuming force, pushing aside more important priorities?

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