By Jack Humphreville
The seemingly innocuous approvals of the changes in the Market Value Corridors by the Boards of LACERS and the Fire & Police Pensions represents “the most naked and brazen attempt at intergenerational theft ever attempted” according to investment advisor and City pension expert Alex Rubalcava. In an attempt to balance next year’s budget deficit of $821 million, these two Boards, by sleight of hand, in cahoots with City Hall and in a blatant violation of their fiduciary duty (no wonder there are so many vacancies), have achieved “savings” of around $400 million, magically reducing the budget deficit to $408 million (not including Sustainable Funding for the infrastructure).
In reality, this “savings” is just another time-honored deferral into future years of financial obligations which are going to come back and haunt us and our children for many years.
Pension fund accounting is a very complicated field dominated by actuaries and their powerful number crunching computers.
However, simplistically, by widening the Market Value Corridor, it is an explicit acknowledgement that the market value of the pension fund assets is significantly below the made up actuarial value of the assets.
If the market value goes below the corridor based on the made up actuarial value, the City would be required to increase its annual contribution.
By increasing the Market Value Corridor from 20% to 50%, the contribution to LACERS decreases by about $160 million. By increasing the Market Value Corridor from 20% to 40% and increasing the “smoothing” period to seven years, the contribution to the Police & Fire Pensions decreases by about $230 million.
This is just another example of the budget trickery and “one offs” going on at City Hall.
This year’s budget, which still is not balanced, started off at $400 million. But by raiding LACERS for about $275 million with the Early Retirement Incentive Plan, by deferring overtime for the police department, and deferring raises for City employees, the budget deficit is anticipated to be reduced to $98 million, not including “the impact of pending lawsuits and shortfalls in department accounts that cannot be accurately quantified at present.”
Another $91 million of transfers, appropriations, and other adjustments have been recommended to close the budget gap.
In addition to the continuing budget deficit, the City’s Reserve Fund is dangerously low at $122 million, representing less than 3% of the General Fund, and significantly lower than the last year’s level $200 million, still below the 5% to 7% range that is desired by the rating agencies.
And with a burn rate of $1 million a day, we will not make to the end of the fiscal year.
As for the projected deficit of $408 million, assuming you trust the City’s numbers, the City realizes that it will need to reduce employment and cut services. But how is another question, especially given the political muscle of the municipal unions. Just be prepared for more fiscal chicanery.
Interestingly, Voice of San Diego, a non-profit online newspaper, disclosed that a private taskforce formed by San Diego’s mayor is “recommending the city file for bankruptcy unless it undergoes a series of urgent and drastic fiscal reforms.” Bankruptcy an Option makes for interesting reading. [LINK]
Putting this into the proper perspective, San Diego is in better financial condition than the City of Los Angeles.
We can no longer afford the luxury of “kicking the can down the street.” We have a choice. Get real, form The Los Angeles Municipal Assistance Corporation and Emergency Control Board (a la NYC in 1975), balance the budget (including Sustainable Funding), and stop the Intergenerational Theft. Or, muddle along, lots of one offs, destroy the City’s bond rating, face a voter revolt, and eventually file for bankruptcy, destroying the legacy of Mayor Antonio Villaraigosa and all elected officials
(Jack Humphreville is the President of the DWP Advocacy Committee and the Ratepayer Advocate for the Greater Wilshire Neighborhood Council. Humphreville is the publisher of the Recycler www.recycler.com. He can be reached at This email address is being protected from spam bots, you need Javascript enabled to view it ) ◘
CityWatch
Vol 7 Issue 97
Pub: Nov 27, 2009