Los Angeles is facing a terminal fiscal crisis: Between now and 2014 the city will likely declare bankruptcy. Yet Mayor Antonio Villaraigosa and the City Council have been either unable or unwilling to face this fact say Richard Riordan a former mayor of Los Angeles and Alexander Rubalcava president of Rubalcava Capital Management an investment advisory firm.
According to the citys own forecasts in the next four years annual pension and post-retirement health-care costs will increase by about $2.5 billion if no action is taken by the city government. Even if Villaraigosa were to enact drastic pension reform today -- which he shows no signs of doing -- the city would only save a few hundred million per year.
Los Angeless fiscal woes can be traced to two numbers say Riordan and Rubalcava: 8 percent and 5000.
- Eight percent has been the projected annual rate of return on the assets in Los Angeles pension funds.
- Four years ago Villaraigosa was warned of the dangers behind the myth of that 8 percent only to be told by the city controllers office that our warnings were based on faulty assumptions which are largely disputed.
How faulty were the assumptions of Riordan and Rubalcava? Over the last decade the two main pension funds in Los Angeles have seen their assets grow at just 3.5 percent and 2.8 percent annually.
Five thousand is the number of employees added to the citys payroll during Villaraigosas first term as mayor say Riordan and Rubalcava:
- According to Californias Economic Development Department when Villaraigosa took office there were 4.73 million jobs in Los Angeles and 252000 unemployed people.
- Today there are just 4.19 million jobs in Los Angeles and over 632000 unemployed people.
The mayor cant control the economy but he could have chosen to control spending to keep the size of government proportional to the size of the local economy. Instead hes done the opposite: squeezing the citys productive workers to fund the salaries pensions and other benefits of government workers say Riordan and Rubalcava.
Source: Richard Riordan and Alexander Rubalcava
Los Angeles on the Brink of Bankruptcy; What Mayor Villaraigosa must do to save the city Wall Street Journal May 5 2010.
