City Budget Spared $90 Million for Pension Funds

The city's budget will be spared $90 million in spending for municipal workers' pensions, providing some unusually good news for Los Angeles officials contemplating a large deficit for the next fiscal year, according a to a report released today.

Stronger than expected returns on investments for two city employee pension funds will lower the city's share of workers' retirements from $948 million to $858 million, a nearly 10 percent reduction.

The two pension funds earned returns of more than 21 percent for the fiscal year that ended last June, according to the report from City Administrative Officer Miguel Santana, the city's top budget adviser. Part of the savings also comes from a phase-in of more conservative assumptions for investment returns and the majority of city workers paying 2 percent to 4 percent more of their salaries toward retirement health care.

The savings, however, will be partially offset by other rising costs, including some workers' pay increases set to take effect in July and the rising cost of health benefits.

The net result, Santana reported, is a smaller, but still significant budget deficit for the next fiscal year of between $150 million and $200 million.

"Working in partnership with our employees, we have shown that we can move towards balancing the budget by reducing workforce costs rather than simply reducing city services," said Peter Sanders, Mayor Antonio Villaraigosa's press secretary. "This is a sizable cost savings, and we are turning the corner. However, much work remains to be done."

Two major issues that could negatively affect the city's budget in a dramatic way remain unsettled, the report states. A judge will hear a class-action lawsuit against the city over telephone taxes that could cost the city as much as $750 million, according to an estimate by the city.

Mayor Antonio Villaraigosa and some City Council members have also called for eliminating the city's business tax, which brings in more than $400 million to the city's general fund, which goes to pay for basic city services.

The budget deficit for the 2012-13 fiscal year also depends on how city officials manage a hole of more than $72 million for the remaining six months of the current fiscal year.

Santana warned city officials that they must consider eliminating more city positions and asking workers to contribute more to their retirements "to make a true impact on the city's ongoing deficit."

City Councilman Tony Cardenas, vice chair of the Budget and Finance Committee, called the report good news, but said the budget situation is still dire.

"The city still faces a financial shortfall of up to $200 million next fiscal year. That figure could grow based on circumstances out of our control, and in the near future we'll also be dealing with unprecedented pension and health care expenses," Cardenas said. "Our priority remains clear; we have to continue reining in all costs to ensure the city's financial future."