When the nation’s second largest city teeters on the verge of bankruptcy, local elected officials – and especially taxpayers elsewhere – ought to take it as a wake-up call and ponder the evident public policy blunders that laid the groundwork for such an unnecessary scenario.
Los Angeles’ potential bankruptcy and $238 million budget shortfall were predictable and preventable. So predictable in fact that former Los Angeles Mayor Richard Riordan warned of the looming crisis in a Wall Street Journal editorial in 2010. Now he says bankruptcy may be just a year away.
What underscores this municipal catastrophe is the undue influence of public employee unions on city expenditures, irresponsible decisions by elected leaders and unsustainable benefit structures practically germane to the government sector.When reporting the projected budget gap for the 2012-13 fiscal year, L.A.’s chief administrative officer, Miguel Santana, noted that the budget shortfall is likely to be much greater – $427 million – by 2014-15, if drastic action is not taken.Ominous as the projections are, they understate the forthcoming structural challenges in L.A.
A study released earlier this month by the Stanford Institute for Economic Policy Research estimated that each of the city’s three independent pension funds are unfunded by billions of dollars: the City of Los Angeles Fire and Police Pension System is $9.25 billion unfunded; the Los Angeles City Employees’ Retirement System is $11.32 billion unfunded; and the City of Los Angeles Water and Power Employees’ Retirement System is $6.59 billion unfunded. To put the numbers in context, L.A.’s 2011-12 operating budget is $6.87 billion, according to the city.
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