Thursday, March 7, 2013

Will Los Angeles Join Detroit As a Fiscal Zombie City?

RCM ^ | 03/06/2013 | Steve Malanga

Few people should have been surprised when Michigan Gov. Rick Snyder said last week that he was beginning a state takeover of insolvent Detroit. After all, the city's schools have been operating under state control since 2009, while Detroit government itself has been running an accumulated deficit since 2005 and papering over its finances with borrowing.
No one would mistake Los Angeles for Detroit, however, and not just because of the weather. Los Angeles is not a fading rustbelt metropolis but a global city, a center of entertainment, finance and trade. But at a forum for mayoral candidates last month, one journalist on the panel of questioners asked the contenders whether they thought Los Angeles faced a real prospect of bankruptcy, and at least two of the candidates agreed it did.
The question didn't come out of nowhere. Last April, the city's administrative officer issued a report on Los Angeles' deteriorating finances and its long-term structural imbalance, which is budget talk for the fact that the city's projected revenues and spending don't match up over the coming years. Just to ensure that readers didn't miss his point, the CAO, Miguel Santana, started his report by recounting the path to insolvency trod by another California city, Stockton, and observed that in that case, "Getting to the doorstep of bankruptcy did not happen overnight."
Since then, Los Angeles' political leadership has engineered small changes in its budget, such as less expensive pensions for new workers, but that won't generate substantial savings for years. Now a new report issued last week by a budget watchdog group, California Common Sense, says that Los Angeles' current workforce retirement costs alone are so great that reforming then is essential to ‘avoiding insolvency' in the nation's third largest city. Pension costs have gone in 10 years from 3 percent of the city's budget to 18 percent, and even with the increased contributions by the city, its pension debt is growing larger.
Los Angeles represents the new model of urban distress. That is so because it isn't coming face-to-face with its crisis after decades of decline spurred by job losses in its single most important industry, as Detroit did with the auto makers. For all of the shortcomings of Los Angeles' civic leadership, the city also hasn't endured the political follies of Detroit during its economic decline, like the tenure of Mayor Kwame Kilpatrick, dubbed "America's hip-hop mayor," who went to jail for obstruction of justice after lying about an extramarital affair in a sex-and texting scandal with a city employee, and who still faces federal charges for extortion, bribery and fraud.
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