LA Public Pension Problem a Microcosm of California’s Financial Woes

Former Los Angeles Mayor Richard Riordan abandoned efforts this week to gather signatures for a ballot initiative to reform the city’s public pension plan. Riordan said he didn’t think he could acquire 300,000 signatures by the Dec. 28 deadline to get his measure, which would rquire city workers to contribute more toward their pensions and convert all employees to 401K-type plans, on the May ballot.

It will come as no shock that Service Employees International Union Local 721, which represents public service workers in Southern California, and the Los Angeles Police Protective League led the opposition to Riordan’s initiative.

Tyler Izen, the president of the LA Police Protection League, said Riordan’s plan was “both simplistic and costly … for the taxpayers.” But what is truly costly is avoiding reform. According to the Los Angeles Times, the city’s pension shortfall hinders its ability to balance its budget. Miguel Santana, LA’s chief financial officer, said the faces a $222 million budget shortfall now and a $427 million gap by 2014-15.

“We’re always in crisis mode,” Santana said. “We’re always trying to close that shortfall.”

And it’s not like Riordan and Santana are the only people to recognize the problem. Current LA Mayor Antonio Villaraigosa  has backed a plan which according to the newspaper, will “hike the retirement age to 65 and require city workers to pay more toward their retirement funds in years when the value of investments declines.”  Labor unions criticized the plan for going too far; Riordan hit it for not going far enough.

Meanwhile, the city’s pension crisis continues to grow. According to study released by the Stanford Institute for Economic Policy Research, spending on public employee pensions is growing faster than any other signficant item in the budget. Pensions accounted for 13.7 percent of Los Angeles’ budget this year and will climb to 15.4 percent in the next fiscal year. By comparison, public safety accounts for 5.2 percent, health and sanitation 3.6 percent and cultural services 5.8 percent. And the city can’t look to the state for help. California’s budget deficit reached estimated $16 billion this year.

Voters in California have yet to get the message. On Nov. 6, they approved Proposition 30, which raised income taxes on the wealthiest state residents and increased the state sales tax to benefit its crumbling education system. They also rejected Proposition 32, which would have limited union and corporate influence within political campaigns. California labor unions, unsurprisingly, invested heavily in both campaigns.

Not for long will California continue to be known as the Golden State.