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Los Angeles City Hall (Wikisteve via Creative Commons)
Is Los Angeles facing bankruptcy? Does the nation's second largest city need a bankruptcy court judge to fix its pension problem? These were questions put to L. A. City Controller Wendy Greuel this morning on Fox's Varney & Co.
Last week, Wendy Greuel issued a statement that the City of Los Angeles would run out of cash in its General Fund by May 5. This morning, Greuel was on the Fox show to discuss how to fix the City's growing budget crisis.
Host Stuart Varney asserted that, based on his knowledge from past interviews, "L.A. really faces bankruptcy...it is impossible to put your financial house in order without an outside authority--a bankruptcy court judge."
Greuel stated that she feels that bankruptcy is a "cop out." She further explained:
The judge would tell us to do the same things that Mayor and Council could do today--which is to cut our expenses, to downsize government, and to focus on the most important parts of government which is public safety, public works, and economic development.
Varney then insisted that "only a bankruptcy court judge can fix your pension problem and one of the biggest problems for Los Angeles is these lavish pensions paid to retired city workers."
Greuel did not exactly disagree. She said:
You could also bring unions to the table to try and negotiate and look at the pension system going forward. But you are accurate in the fact that we have a looming pension challenge going forward. In fact, it's in, I think, 2014 potentially half of our General Fund would be on pension.
As Greuel suggests, the City will have to reduce liabilities and costs in order to balance its books. The Controller also warned that if the City does not move money into the General Fund by April 19, there will not be enough cash on hand to pay bills. She further projects that, absent new funds, there will be only $38 million in the Reserve Fund by the end of the fiscal year--not enough to handle emergencies.
Due to its seeming inability to balance its budget, the City of Los Angeles has endured negative assessments by two major credit rating agencies in the past week. On April 7, Moody’s announced that it had downgraded the credit rating for the City of Los Angeles from Aa2 to Aa3. On April 8, Standard & Poor’s Ratings Services placed its City of Los Angeles “AA-“ general obligation and “A+” appropriation-back bond ratings on CreditWatch with negative implications. This will make it more costly for the City to borrow in the future.
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