Riordan's budget warning

"Los Angeles is facing a terminal fiscal crisis," is how the former mayor opens his WSJ oped (co-authored by Alexander Rubalcava, who heads an investment advisory firm). He writes that the city will likely declare bankruptcy between now and 2014, and places much of the blame (appropriately so) on the doorsteps of the current mayor and the City Council.

The mayor can't 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 he's done the opposite: squeezing the city's productive workers to fund the salaries, pensions and other benefits of government workers. How have city leaders responded to the crisis? Pension officials have played accounting games, like smoothing the investment return over seven years rather than five years. This is designed to dilute the near-term effect of the financial meltdown at the expense of much higher payments later.

I doubt that Riordan's bully pulpit is all that big these days, which is too bad because his analysis is generally on the money (leaving out the fact that some of the decisions that got the city in such trouble came on his watch). Riordan has taken particular aim at city projections that returns on pension funds would run 8 percent. "How faulty were our assumptions?" he asks. "Over the last decade, the two main pension funds in Los Angeles have seen their assets grow at just 3.5% and 2.8% annually."

Still wondering how Deputy Mayor Austin Beutner really feels about bankruptcy. Publicly, he's more or less parroting Villaraigosa's "no way, no how" position, but Beutner happens to be tight with Riordan, and the two of them suffer no fools when it comes to business realities. It's entirely possible that Beutner simply disagrees with Riordan's analysis, but it's hard to see why he would.


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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
 
Mark Lacter, business writer and editor was 59
The multi-talented Mark Lacter
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