by Webmaster

Thirty Days Closer to Bankruptcy

Last week, the L.A. City Council pushed Los Angeles closer to municipal bankruptcy. During a tedious eight-hour discussion that was intended to address the City's $208 million budget deficit for the current fiscal year, the City Council avoided implementing the sound recommendations of the city's chief administrative officer and actually added $4 million in new spending to the deficit. The Council meets today on next steps, and we are watching closely to see if they will fulfill their fiduciary responsibility to the 4 million residents of Los Angeles.

The city's financial situation is beyond dire. Even after addressing the current budget deficit of $208 million, the projections released last week show that next year's deficit will rise to $484 million and it will continue climbing until the deficit surpasses $1 billion in 2013. Credit rating agencies are voicing concern and may lower the city's bond rating within the next few months if no significant action is taken. The city's emergency reserve — money set aside in case of a major catastrophe — is now being depleted to cover operating costs. Despite nearly a year of discussions, recommendations and negotiations on how to avert bankruptcy, the City Council chose to delay action yet another 30 days in order to further study its options.

The recession accelerated this growing deficit, but the underlying causes have been brewing for years. The general fund budget grew from $5.16 billion in 2003 to more than $7 billion this fiscal year. Despite warning signs of an economic slowdown, our elected officials kept approving more spending including significant pay increases for city workers and refusing to address the growing unfunded public pension liability that's now in the billions of dollars.

Families and businesses realized two years ago that the road out of this economic crisis would be long and difficult. Tough decisions were made around kitchen tables and in staff meetings to reduce spending, pay down debt and get back to the basics. Unfortunately, more than 450,000 private sector employees have lost their jobs in L.A. County, and most others felt the pain of significant pay cuts and furloughs — some voluntary in order to keep the maximum number of coworkers employed. All of us reengineered the way we do business to manage our finances. Meanwhile, the City Council kept doing business as usual. Now, the general public and the city's own employees will be forced to pay for those mistakes.

There is a road out of this for the City of Los Angeles. Mayor Villaraigosa stepped up late Thursday and made one of the tough decisions on which the Council refused to act a day earlier. It's just the beginning. As recommended by the City's chief administrative officer, L.A. city government must return to its core function of providing public safety and only the most essential public services.

L.A.'s doomsday clock is ticking. More delays will mean more layoffs for city workers and will leave city residents on the hook for an even larger deficit. The City Council's actions this week will demonstrate to all of us if they are truly serious about leading. Otherwise, it's time for L.A. residents to look for new leadership at City Hall.

Join the Chamber in voicing support for the city's chief administrative officer's recommendations. Take action today.

And that's The Business Perspective.