By Ed Mendel
Monday, August 27, 2012

A staff chart given to Los Angeles city council labor negotiators this month shows that city retirement costs nearly doubled in the last seven years, soaring to 18.6 percent of general fund revenue this fiscal year, $848 million.

In the next four years, the annual cost of the two city retirement systems for police and firefighters and for non-sworn employees is projected to increase by half to $1.285 billion, about 25.5 percent of general fund revenue.

Retirement costs continue to climb as the deficit-ridden city, already hit by four years of deep cuts in the workforce and services, faces another major budget shortfall next fiscal year that could balloon to more than a quarter billion dollars.

How unusual is the size of the growing bite taken by pensions and retiree health care costs from funds needed for other government services?

In San Jose and San Diego, where voters in June approved sweeping pension reforms now opposed in the courts by public employee unions, retirement costs were about 20 percent of the general fund.

Before a stock market crash and deep economic recession hit pension fund investments expected to pay two-thirds of future pension costs, a governor’s commission reported in 2008 that the average pension cost was 4 percent of the general fund.

Former Los Angeles Mayor Richard Riordan, who warned in a Wall Street Journal article two years ago that the city was likely to declare bankruptcy by 2014, renewed his alarm in a television interview last week.

Asked if by fiscal “disaster” he meant “bankruptcy,” Riordan told Fox Business that bankruptcy is a “bad word” but will perhaps be necessary. If nothing is done to curb retirement costs, he predicted the city could become insolvent in one to three years.

“Maybe the only thing you can do is go into bankruptcy in order to have the court cut back on all these terrible pensions, health care and other things,” Riordan said.

If the city council does not curb retirement costs, Riordan and several business leaders said they will put a pension reform initiative on the ballot. Their preliminary plan would give new hires lower pensions and require voter approval of pension increases.

To reduce the cost of pensions promised current workers, widely believed to be protected by court decisions, salaries would be frozen when city pension contributions exceed 25 percent of police and firefighter pay and 15 percent of non-sworn pay.

A union-backed change placed on the March ballot last year by the city council, Measure G, gives lower pensions to new hires from the Los Angeles Fire and Police Pensions system.

Members also must contribute an additional 2 percent of pay to maintain full retiree health care, bringing their total contribution to LAFPP to 11 percent of pay. The city contribution to LAFPP is about 42 percent of pay.

Many members of the other city pension plan, the Los Angeles City Employees Retirement System, have agreed to increase their contributions to 11 percent of pay, some going up from 6 percent. The city contribution to LACERS is about 24 percent of pay.

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