Former L.A. Mayor: Bankruptcy May Be the Only Solution

From LaTi

Former mayor Richard Riordan has been roiling the civic waters by arguing that the surest -- and perhaps the only -- way out of Los Angeles' fiscal crisis is a declaration of municipal bankruptcy, which he believes ought to come sooner rather than later.

In a conversation with The Times over the weekend, Riordan argued that bankruptcy may be the only way to attack the structural problem gnawing the heart out of the city budget: unsustainable public employee pension costs. Currently, Riordan says, the city is struggling to meet its pension obligations, and that's assuming it will receive 8% annually on the money invested on retirees' behalf. In fact, the average return over the past decade has been just 4%. Over the next few years, L.A. may be looking at $1.5 billion in pension obligations it can't meet. "We need some adults to come alive in the city and to talk through how to meet that liability," he said. "If that doesn't happen, we shouldn't rule out bankruptcy."

This is going to get really interesting. Even bankruptcy, given that the problem is significantly pension liabilities, could be a political non-starter. It's not like Greece where the liabilities are owed to a bunch of German banks. All Greeks are in favor of stiffing the Germans.

L.A. city workers are certainly not in favor of stiffing themselves. In this sense, Los Angeles is a more complex problem than Greece.