When the City of Los Angeles goes the whole house of cards falls IMO.
It’s the 800 pound gorilla,
Note, also I believe 8-10% inflation would make all this a non-event if it were to last over 5 years.
The pension short fall would be reduced to a small amount, (so would DB pensions as well).
For a city with annual revenue of 3.6 billion, a 26 billion pension short fall seems insurmountable,
No fear, inflation will save the city…
• In 2012-13, Los Angeles’s pension costs are expected to rise to $1.3 billion, or 18% of the city’s budgeted expenditures. In 2002-03, just 10 years ago, pension costs were only $157 million, or 3% of total expenditures.
• Over the last decade, pension costs have grown at an annual average growth rate of 25% and have outpaced spending growth for every major area of the city’s budget.
• In 2012-13, the city of Los Angeles is expected to spend up to 32 cents toward pension benefits for every dollar it spends on total payroll for its employees. Employees will pay 9 cents for every dollar of payroll.
• From 2003 to 2012, the total official funding ratio of the city’s pension plans declined from 99.7% to 77.2%. Correspondingly, the city’s officially-reported unfunded liability increased from $87 million to $9.4 billion, more than a 100-fold increase.
• The growth in the unfunded liability and declines in the funding ratio are largely attributable to investment returns falling below the rate pension plans assumed they would earn (on average 7.75% per annum, net of expenses, on a portfolio consisting largely of bonds and equities). Over the last 10 years, LACERS, LAFPP, and LADWP pension trust funds have earned compound annual rates of return of 6.46%, 6.68%, and 5.11%, respectively. Over the last five years, these return rates were 0.68%, 1.06%, and 1.47%, respectively.
• Using Moody’s investment return assumption (5.5%), the unfunded liabilities would nearly triple to $25.9 billion.
