Quantcast
Regional News

No Threat of Bankruptcy, Los Angeles Budget Boss Contends

JUN 21, 2011 7:04pm ET
Print
Email
Reprints
Twitter
LinkedIn
Facebook
Google+

SAN FRANCISCO — Although Los Angeles is living through hard times, it’s far from insolvency, the city’s top budget official says.

Chief administrative officer Miguel Santana said claims by former Mayor Richard Riordan that Los Angeles is headed towards bankruptcy are off-base.

“There are so many tools in front of us before insolvency even becomes an option,” Santana said in an interview. “We have actually made significant progress over the last two to three years to address some of our underlying challenges. We are very proud of what we have done.”

Santana said the city has made changes that include reducing the size of government, lowering employee costs, and redefining the role of the city in an effort to structurally address its budget deficits.

Less than two years ago, the city projected a $446 million deficit for fiscal 2012-13. Now it estimates a $196 million deficit.

Earlier this month, Mayor Antonio Villaraigosa signed a $6.9 billion budget that filled a $315 million gap mainly by cutting police and fire services, but which avoided further layoffs of city employees.

“I am not saying we are done yet,” Santana said. “Reducing a deficit projected out in half in a very short period of time, in 16 months, is a tremendous amount of progress and I don’t know of any other city that has been able to do that.”

Los Angeles has also implemented a three-year road map and has worked to stabilize its reserve funds, according to Santana.

The current reserve fund balance stands at $193 million, or 4.43% of the adopted budget.

Riordan, during an interview last week, warned that Los Angeles, like many cities and states, faces a dramatic increase in employee pensions and health care benefit costs over the next several years that would lead the way to insolvency. Riordan was mayor from 1993 to 2001.

The warnings from the former mayor are nothing new — he has been sounding them for more than a year, with opinion pieces appearing last year in the Wall Street Journal and the New York Times.

Riordan has come under fire from critics because his administration had negotiated some of the retirement benefit packages that the city is now trying to roll back.

He said the city would have to come up with between $2 billion and $3 billion over the next three years to cover the rising pension and retiree health benefit costs, which include the Los Angeles Department of Water and Power.

Riordan said new employees still are on defined-benefit plans that the city can’t afford, especially since it estimates its costs based on an annual investment return rate of 8% for the pension systems, a figure he believes is too high.

Santana said he didn’t know where Riordan got his figures, adding that in 2015 to 2016 future pension and retiree health care contributions will be around $1.2 billion.

“We are one of the few cities that is not just talking about pension reform but has adopted it,” said Santana, whose job includes negotiating with city employee unions.

He said Los Angeles has negotiated concessions with a majority of civilian unions and is very close to reaching a resolution with police and fire unions.

The City Council last week moved to freeze the retiree health care benefits at the vesting level should police, fire, and other civilian union members decline certain concessions.

Early this year, more than 73% of Los Angeles voters approved a ballot measure to create a lower level of benefits for newly hired police officers and firefighters.

City Council member Bernard Parks said Los Angeles is facing some serious fiscal problems, especially employee costs that will take a number of years to reduce. But he added it has made ­progress.

“The mayor is sounding the horn because there are some very fundamental structural issues,” Parks said. “Our discipline right now is not to negate the positive things that we have done.”

Credit analysts have also warned that the rising employee costs are a major financial problem for the city.

Still, Moody’s Investors Service rates Los Angeles Aa2, while Standard & Poor’s and Fitch Ratings rate the city a notch lower at AA-minus.

The city has also laid off more than 4,000 employees and closed or merged departments over the last several years to help control the budget situation.

Santana said the city is also aggressively pursuing a number of private partnerships to take over some city services, such as the zoo and the convention center. Earlier this year, the City Council declined to set up a public-private partnership for parking garages to shore up finances.

The city has also kept revenue projections at a conservative 1.8% increase for the next fiscal year, according to Santana.

Nationally, Los Angeles’ tax base is second only to New York City’s.

Santana’s comments come just ahead of a road show with investors as the city prepares to sell $1.3 billion of tax and revenue anticipation notes next week.

Los Angeles also plans to sell $125 million of general obligation bonds and $263 million of GO refunding bonds in July, according to Fitch.

SEE MORE IN

RELATED TAGS

markets
markets
markets
markets

Social

facebook
linkedin

A recent phenomenon is the emergence of bonds with shorter call protection as funding alternatives for municipalities. However, the shorter call protection also dampens the potential upside for investors, which in turn reduces the price they are willing to pay.

Upcoming Events

the bond buyer conferences
Already a subscriber? Log in here
Please note you must now log in with your email address and password.