Unless city officials make drastic changes, Los Angeles will be bankrupt by 2014, former LA Mayor Richard Riordan told CNBC.
By this time next year, the cost of retirement pensions in Los Angeles will have jumped from $500 million to nearly $1.25 billion. This coupled with an unemployment rate of 12.3 percent — higher than the 9.6 percent national unemployment rate— has led some city officials, and Riordan, to fear for the worst.
"The stimulus has hardly created a single private job,” Riordan said. “It’s all public jobs, most of which won’t last very long because they’re going to finish a bridge or a tunnel, or whatever they’re working on. And if you’ve heard other things, ridiculous things that that money has been used for.”
Riordan cited fiscal inefficiency as one of the main causes of Los Angeles’ financial woes. City officials have failed to adjust the city’s budget to live within local economic means and are now being forced to pay the price, he said.
“The stock market did so well they assumed it was going to do so well forever. Well it hasn't," Roirdan said. "So, all of a sudden our costs of pensions are going up five times the last ten years … by 2014 it’ll be up to $2 or $3 billion. And we can’t even come close to paying for that.”
Riordan also criticized the city’s current administration, headed by Mayor Antonio Villaraigosa, for adding 3,000 government jobs during a recession. He drew parallels between the inefficiencies created by a burgeoning labor force in Los Angeles and one in the nation’s capital, where a 6.5 percent unemployment rate is among the lowest in the country.
“It’s even worse in Washington D.C. now," he said. "You take Homeland Security where they had, at one time, 80 agencies dealing with it. There was nobody to be held responsible like in 9/11, or when things like that happen. You have to have somebody at the top of the pyramid."
"The same way with the economy, all of the agencies dealing with banks and other lenders, there has to be somebody at the top," he added. President Barack "Obama has to be able to say to Larry Summers or somebody, “I want to have small-, medium-sized businesses be able to get credit, and I want it to start tomorrow.”
But bankruptcy won’t necessarily be a losing outcome for Los Angeles, Riordan said.
“It’s not the worst thing in the world,” he said, adding that it might push the city’s judiciary to redraw a profit and loss statement that it can live with in the future.
He was cautious, though, about the long-term sustainability of reforms made after such a drastic fallout.
“Maybe I’m not optimistic enough, but I think that it won’t be enough of a saving grace to change things for the long term," he said. "But it will be a saving grace.”