Los Angeles could face nearly a $1-billion shortfall by 2010 because of a mammoth bailout needed for the city's employee pension funds, which have seen investments tank in the spiraling national recession, according to a city budget report released Friday.
The grim forecast of a $983-million budget gap came as Mayor Antonio Villaraigosa already was considering widespread city layoffs and deep cuts to services because of the worsening financial crisis. The mayor is also exploring whether to privatize the Los Angeles Zoo and leasing city parking garages and meters, which could raise hundreds of millions of dollars. The total budget this year is $7 billion.
"The deficit and the economy are the biggest challenges we face right now," Villaraigosa told a roundtable of Latino journalists at City Hall on Friday. "This is going to be the most serious effort to reduce the size of government . . . because we have no other options."
Villaraigosa said city officials are negotiating with employees' unions to work out a plan that would allow for early retirements and layoffs.
The city's top budget analyst, interim City Administrative Officer Raymond P. Ciranna, informed the mayor and City Council that Los Angeles faces a $427-million budget shortfall in 2009-10, driven primarily by declining tax revenue and increases in employee pay and benefits.
The budget gap would more than double in the next year because of the troubled pension system. The two-year price tag of that bailout -- the city is obligated to keep the system afloat -- would be enormous, costing $458 million in 2010-11 and $663 million in 2011-2012.
"We are looking at some very difficult times ahead," Ciranna said. "We're going to have to make some major structural changes."
The Los Angeles City Employees' Retirement System and the Los Angeles Fire and Police Pensions are expected to suffer combined investment losses of 25% in the current budget year and to have flat returns in the next year, Ciranna said.
Those losses could be softened if Wall Street rebounds in the next four months, although that is not expected. The city also could extend the standard five-year time period it normally uses to absorb such losses, which would carry a lower annual cost. "There are a lot of things up in the air at this point," Ciranna said.
The two city pension systems include 43,000 active city employees and 27,000 retirees and beneficiaries.
