Thanks to pension funds, Los Angeles is close to becoming a microcosm of Greece

Back in the summer of 2012 the City of Los Angeles realized that they had a serious budget problem on their hands and the culprit, as in so many other cities, was the city’s extremely generous pension plan for municipal workers. Mayor Antonio Villaraigosa, backed by the city council, jumped into the fray and passed what was then described as sweeping pension reform and patted themselves on the back for a job well done. (LA Times, 2012)

Despite a raucous protest and threats of a lawsuit from city labor unions, the Los Angeles City Council voted Tuesday to roll back pension benefits and boost the retirement age to 65 for new civilian employees.

The council voted 14-0 to approve the plan, which budget officials say will save $30 million to $70 million over a five-year period. The changes will not go into effect until a final vote in 30 days. In the meantime, the council instructed city negotiators to meet with union leaders “to find common ground and to avoid litigation.”

Good thing they got that sorted out, eh? Really dodged a bullet there. So, four years down the line, how well have those reforms worked out? Well… let’s just say that things could have gone better. (LA Times, this week, emphasis added)

Today, Los Angeles taxpayers are underwriting retirement benefits that are among the nation’s most generous — at a cost that has never been higher.

The city’s general fund payments for pensions and retiree healthcare reached $1.04 billion last year, eating up more than 20% of operating revenue — compared with less than 5% in 2002.

L.A.’s vaunted pension reforms have not cut the city’s pension costs; at best, they have modestly slowed their rate of growth.

It’s only the fact that Hollywood and a few other big dollar enterprises keep their revenues far above average that’s stopping L.A. from sinking into fiscal dysfunction. Having 20% of your budget going to pension payments isn’t just massive… it’s unsustainable in the long run. Going back to the 2012 article I linked, the answer was right there in front of them. None of the modest reforms they enacted applied to current employees (who number more than 20K), only to new workers. Several large groups, including firefighters, police and water department workers were excluded from the reforms. And all of those pensions for existing workers are based on their salaries, which average anywhere from 20 to 42 percent higher than their civilian counterparts. No wonder their budget has this massive hole in it.

How many cities and states have seen seen this pattern repeated in? Pensions basically bankrupted Detroit. Chris Christie has spent a huge amount of his term fighting the bloated pension system in New Jersey. Cities from Cincinnati to Billings, Montana, Charleston, Portland and Chicago (which is at the top of the list) comprise the dozens of municipalities with the most massive unfunded pension debts hanging over their heads. Have we learned nothing?

If we’re to be brutally honest about how we got to this point (as well as what to do going forward), failure was baked into the cake from the beginning. The real issue is found in the fact that government employee unions were the ones negotiating with the municipal and state governments for the best, most expensive benefits they could manage. Unfortunately, in virtually every major city in the country, the government was run by the Democrats. Given what you no doubt already know, think about that for a moment. It means that the Democrats were negotiating against the Democrats. Nobody was representing the taxpayers and, perhaps even more seriously, nobody was there to keep their own appetites in check.

Now the chickens are coming home to roost in too many of these cities and the unions have crafted their deals so carefully that there is little the government can do to dig themselves out of massive budget holes. Los Angeles isn’t going under yet because of their fat budget, but looking at the bottom line on their ledgers it’s easy to see that it would only take one bad economic turn in their fortunes for the bottom to fall out of it. The public workers unions have feathered their beds quite nicely at the expense of everyone else, but you always wind up killing the goose that’s laying the golden eggs eventually.

Los Angeles