An Update on Budget Negotiations
As many of you know, L.A. is facing fiscal problems of unprecedented magnitudes and in planning our budget we faced a shortfall of $530 million. Several weeks ago in this space, I set out some principles that I intended to use in my work to build a balanced budget. They included sharing sacrifices without compromising our values, protecting our gains in public safety, and treating our employees humanely. I also noted that, because the majority of our budget is spent on payroll, the hard reality is that this cost must come down one way or another.
We have been making progress in this area through the Mayor’s negotiations with the leaders of the Coalition of City Unions (representing about 22,000 of the city’s 40,000 workers). In the spirit of shared sacrifice, Coalition Union members would defer any cost of living adjustment increases (COLA’s) to their salaries for the next 2 years. They would also be increasing their payroll contribution to the City pension fund, which will allow us to implement an early retirement incentive plan without increasing our pension fund liabilities. If approved by the members, these measures will save approximately $200 million and allow the City to avoid the vast majority of furloughs and layoffs at a time when the regional unemployment rate threatens to top 12%.
This agreement doesn’t quite get us over the finish line in terms of getting our budget deficit to zero, but combined with other cuts that have already been approved, our budget shortfall has shrunk from $530 million to $130 million. We are still in negotiations with other city unions, and I’m hopeful that they will follow the example set by the Coalition Union members to help us eliminate this remaining shortfall.
You may have heard that the early retirement program will put a greater strain on an already overburdened pension fund. I too am concerned about additional liabilities in our pension fund, and that’s why we are taking a data-driven approach. This agreement was based on two previous actuarial studies in addition to hundreds of hours of research and discussion. Further, we are awaiting a third actuarial report that we expect to receive in the next three weeks. This agreement will not take effect unless the third report supports the previous conclusions.
As I’ve said before, transparency in our governing process is important to me. This agreement has not received final approval, and will not receive final approval until the study been presented to the public and until 30 days for public comment has elapsed. The study will by posted on LACity.org when it is complete, and I encourage everyone to take a look.
Everyone should also be aware that there is currently a $600 million long-term shortfall in the city’s pension fund, which is largely a result of the significant stock market losses that have occurred in the past year. While this shortfall has no impact on this year’s budget, it will rapidly become a problem if we do nothing. However, we are actively working to address this issue with the implementation of tiered benefits for future employees. Stay tuned, as it will continue to be discussed in the coming months.
