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More in-depth dialogue took place during several panel discussions covering a variety of topics including the collaboration between neighborhood and business leaders, the link between stimulus funds and job creation, as well as the city budget and how to prevent a fiscal meltdown. Sitting on the city budget panel, attempting to answer the question, “how can L.A. prevent a fiscal meltdown?” were Councilmember and Chair of the Budget and Finance Committee Bernard Parks, SEIU Local 721 Regional Director Julie Butcher, Target Media Partners CEO Jack Humphreville, Principal of Rubalcava Capital Management Alex Rubalcava, and the city’s Chief Administrative Officer Miguel Santana. Diving into the city’s $405 million budget deficit and the following year’s shortfall, as well as the controversy over the city’s pensions system CAO Miguel Santana attributed the city’s current financial crisis to greater structural problems and long term fiscal mismanagement, stating that the city’s expenditures had outpaced its revenues and would continue to do so if the city did not dramatically reduce the size of it’s workforce and reassess its purpose. “We need to look at all of this in perspective. We didn’t get here in one year. A lot of the issues raised here have developed over the course of a decade,” said Santana. “The way our government is structured, there are elements that do and do not work. And the things that do not work need to change. It is not going to happen over night.” One highly controversial solution is the Early Retirement Incentive Program (or ERIP). While initially opposed to the ERIP, Santana believes that the modified version of the agreement will do more to reduce the workforce and establish a pathway to deal with the city’s financial problems. “The reality is that our workforce is too big. We have a workforce that we cannot manage. The only way to reduce our expenditures is by reducing the size of our workforce.” Santana explained that one of the benefits behind the ERIP is that it identifies the most expensive workers in the system, particularly those who have spent the majority of their careers in city employment and gives them the opportunity to retire rather than laying off the newest workers or imposing furloughs. He asserted that the ERIP would provide $120 million savings for this year. In addition to reducing the number of people employed by the city, Santana recommended that the city seriously consider its core function and begin asking the tough questions about what it is that residents rely on the city to do everyday. “How do we reorganize the city as a whole fundamentally? After all, the city cannot be all things to all people anymore.” Presenting an alternative, perhaps less optimistic view of the city’s financial status, L.A. business owner Jack Humphreville emphasized the fact that the city is broke, deferring expenses, and raiding the pension fund, as well as transferring employees to other departments like the DWP. Humphreville stressed that the ERIP, or as he called it, the “E-Rip-off” does nothing to fix the city’s vastly understated $405 million deficit. Instead, he sees the plan as merely paying participants $125,000 to ‘get lost’ and creates a burden of $276 million on the pension plan. One point of consensus among the panelists was that the city is structurally broken; although reasons fore this breakdown varied. Humphreville attributed many of the city’s problems to organizational inefficiencies. “We have a political system that is structurally broke. The mayor and the city council are unwilling to make tough decisions regarding personnel,” said Humphreville. “The main reason for that is the unions in this city have complete control. The IBEW was the mayor’s largest campaign contributor in 2005 and the SEIU has a $70-80million budget.” City Councilmember Bernard Parks insisted that the city’s problems began when the city was most prosperous, when it had an abundance of cash and spent it unwisely. “We spent one-time monies on multi-year projects and people (medical, workers compensation, and unions),” said Parks. “We continued to use our credit cards even though we had money on hand and we are still paying for them now.” Disagreeing with Humphreville about the ERIP, Parks insisted there are guarantees in the plan that would prevent undue burden on the pension system. However, he did not elaborate. He did agree however that the city is structurally unsound. “The structural deficit is real. We have been too good at finding one-use solutions. Every year someone will open a drawer and find enough money to fill the void until we move on to the next year,” said Parks. As the structural deficit continues to grow there is no more money lying around to draw from. “This is a true issue that we must resolve because it is growing. There are no more one-use solutions,” said Parks. Typically the city has 18 to 20 revenue sources that have prospered over time to draw from, but when one drops the others fill the void. But this year 12 of the 18 flat lined. “The situation is dire because nothing has recovered. We have to address these things this year and they will only get worse next year. If we don’t control the cost of pensions, worker comp and medical costs those three alone can bankrupt the city.” Representing city workers and Local SEIU 721, Julie Butcher was adamant that city workers share the interests of the Los Angeles business community. “City workers also wish to save the city for the long term, for the short term, and save the pension sustainability,” said Butcher. Looking at the ERIP from the union perspective Butcher said, “For the 22,000 workers represented in the coalition of city unions, which is 6 unions, 18 bargaining units, and covers every group of workers in the city we really had to step up. In the short term we have reached an agreement to help the city sustain itself in the long haul.” She clarified that city workers never viewed the ERIP as a means of improving retirement that it was about ensuring the long-term sustainability of the services provided by the city. Expanding on some details about the Early Retirement Incentive Program Butcher said that it allows the city to address its structural deficit in a way that simply laying workers off or furloughing them could not. She, like Santana and Parks held that the renegotiated version of the ERIP was much improved and addressed the concerns of both city workers and taxpayers. “The preliminary version of the ERIP did exactly what we were concerned about.” Said Butcher. “Namely, cutting from the bottom those who are most likely to be providing direct services rather than encouraging retirement among those who are ready to retire.” She reminded the panel and the audience, “City workers are going to continue to pick up your trash even after the politicians who are here have gone. We are all in this together. We are not on the verge of bankruptcy and we should not say that to people. It is rough out there but we can do things to help the city and ourselves.” Countering Butcher’s optimism with perhaps the most dramatic argument of the panel, Alex Rubalava insisted that the pension benefits as they are currently constructed, funded and administered, are not only unsustainable but also mathematically impossible. “They are what amounts to a suicide pact between the taxpayers and the workers of the city,” said Rubalcava Explaining that six years ago, the city contributed $250 million to the pension and healthcare benefits of the employees at the three city pension funds LACERS, Fire and Police, and DWP that number has increased to $1 billion this year. Rubalcava also elaborated on structural problems, this time with the city pension funds including the funding mechanisms, administration, and actuarial assumptions. The cash inflows that come from employee dues, taxes, and investment results require taxpayers to provide the most money as member dues to do not change in accordance with the market. Rubalcava felt the city might need to throw out the defined benefit pension and install a flexible contribution plan to keep the system alive. Pension board investments have been less than expected and the as the city continues to fall farther behind its necessary target the larger the deficit will become. Chiming in on the ERIP he explained that the plan includes provisions for increased contributions from the labor force at 1.07% from current employees and 1% from retirees totaling tens of millions of dollars a year. But that means that taxpayers will have to contribute $2.5 billion more. “So for people to claim that the ERIP represents a sustainable long term solution defies any semblance of reality,” insists Rubalcava. Closing his argument and the discussion of the city budget Rubalcava ended on a somber note, “Nothing that you want, nothing that is important to you as a person, a citizen, or to your business will be accomplished in this city until we solve the pension problem.“ “As it is currently constituted, the pension system and the way we manage it is intergenerational theft. It is theft for older employees and theft from young taxpayers and employees for the city,” said Rubalcava. “Until we solve that this city is going to be intolerable place to do business, and an intolerable place to live.” -end |
