L.A. pension funds’ earnings reduce burden on city budget

After taking a beating in the investment markets, two Los Angeles city employee pension funds have produced some good news: Their performance improved enough during the last fiscal year to help provide $90 million in much-needed budget relief.

The strong performance of the two funds, combined with increased retirement contributions from the City Hall workforce and other factors, will reduce this year’s scheduled payment to the two retirement systems from $948 million to $858 million, City Administrative Officer Miguel Santana said in a report released Thursday. That, in turn, will reduce the size of next year’s budget shortfall to between $150 million and $200 million, he said.

Only weeks ago, officials feared the shortfall would reach $250 million.

The two retirement funds — one for police and firefighters, the other for civilian employees — had returns exceeding 21% during the fiscal year that ended June 30. But earnings have been flat since then, Santana said.

That could complicate the budget in 2013, when pension costs are expected to exceed $1 billion for the first time. “The good news is we’re moving in the right direction, but we’re not quite done yet,” Santana said. “We’ve been in a 12-foot ditch, and we have an 8-foot ladder.”

The push to rein in pension costs has been a major part of the budget strategy adopted by Mayor Antonio Villaraigosa and the City Council. A majority of city workers have agreed to devote an additional 2% to 4% of their salaries toward their retirement.

The report shows the city can balance the budget by cutting employee costs instead of reducing city services, the mayor said. “This is a sizable cost savings, and we are turning the corner. However, much work remains to be done,” he said.

Much of the pension savings will be consumed by a roughly $75-million package of employee salary increases that go into effect July 1, Santana said. At least $100 million in personnel expenditures have been postponed until future years, including unused sick time and police overtime.

Santana said the city budget is still too dependent on the fluctuations of the stock market. He plans to recommend in coming months that employees, both sworn and civilian, contribute more toward their healthcare.

“If we ever want to get out of crisis mode, we have to address our ongoing deficit — the gap between revenue and expenditures,” he said.

david.zahniser@latimes.com