Stuck in a pension bind
There may be no better example of being stuck between a rock and a hard place than Mayor Antonio Villaraigosa’s quandary over city pensions. It would be interesting to watch, from a distance, how he balances City Hall’s obligations to retired public employees, who have vested rights in guaranteed annual post-employment pay, against the demands of current workers, who want raises and will furiously resist layoffs and furloughs. It would be easy to scold him for coming very close to — and perhaps crossing — the line that separates perfectly acceptable advice to his Los Angeles City Employees Retirement System board appointees from quite unacceptable pressure on them to adopt higher-than-reasonable projections for investment returns.
But Los Angeles residents and taxpayers, and anyone else with a stake in the future of the city, do not get to observe from a distance, any more than Villaraigosa does. We are all stuck, right there with him, between that rock and that hard place.
Members of the pension board have adhered for too long to the rosy prediction that the fund will achieve an 8% return on its investments. Such a high rate, if actually realized, would mean that a greater chunk of the payout to retired city workers would be paid from those investment earnings. But if the fund earns a lower return, the city’s general fund must make up the difference. So Villaraigosa has been aggressive in advocating for higher projections, or at least for delays in responding to fiscal reality. He removed one board member who didn’t see things his way. The board ended up adopting a 7.75% projection last week, but phased in over five years. It is still too optimistic and could leave the pension fund unstable.
It is certainly wrong to pressure the board, which has a fiduciary duty to present reasonable and achievable projections of future returns, to fudge the numbers. But the alternative — a higher contribution from the city’s general fund, with deeper cuts and hundreds of layoffs — could put Los Angeles into a death spiral. Fewer public safety officers, fewer street workers, fewer inspectors and permit processors would mean further deterioration of the city and greater hardships on residents. Higher crime rates could return, construction could move to nearby cities where there are enough workers to process, or cut through, the red tape. Just when the need for city services is greatest, the services would disappear.
Yes, Villaraigosa needs to back off his pressure on pension board members. But the rest of us in Los Angeles shouldn’t kid ourselves into thinking that a little more belt-tightening now will cure the city’s ills. We need a well-articulated vision of where we are headed as a city, and how we are going to get there. A little luck in the financial markets wouldn’t hurt either.
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