Nothing scares politicians in the City of Los Angeles more than the thought of confronting public labor unions with the reality of retirement benefit costs and facing up to the structural impact they have on the budget.
It comes as no surprise, then, that Mayor Villaraigosa, Eric Garcetti, Jan Perry, Paul Koretz and Bernard Parks pleaded with the LACERS Retirement Board to delay or lower a decrease in the retirement fund’s earning rate assumption from 8% to 7.75%.
A quarter of a point decrease may not sound like much, but it represents $22 million in additional contributions the city would have to make next year.
The sad truth is that the decrease should be much greater – say to around 6.5% to reflect reality. Such a decrease would easily add more than $200 million to the city’s bill.
The five esteemed elected leaders offered as the reason for their request that the city could not deal with the higher contribution when a $250 million deficit is already looming.
LACERS approved the .25% cut but agreed to phase it in over five years, similar to the smoothing it uses for most adverse developments, such as the cost of the ERIP program. In other words, the bad news is pushed out to future fiscal years.
What’s even worse than City Hall failing to deal with the problem in the current year is that there is no plan to deal with it in subsequent years. It is like the owner of a home ignoring termite infestation hoping that the hungry insects will just go away. Our electeds are hoping for a robust economic recovery to bail them out, but the financial damage will compound with each and every year they defer…and there is no robust recovery on the horizon. Modest growth is expected at best for years to come.
Budget Day is this Saturday. The Neighborhood Council representatives should make the following proposal:
The city must negotiate for higher pension contributions from employees. It is unfair to rely on further staff reductions and cuts to core services to plug the hole.
Without this proposal, and the will to fight for it, the budget process will continue to be a charade.