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# LA is B-R-O-K-E
May 16 2013
Written by Jack Humphreville.
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LA WATCHDOG - Even the most casual observer knows the City is cooking the books.
We are all familiar with the angst associated with the annual budget. But this year is a cake walk as General Fund revenues are projected to increase by $325 million, accompanied by unanticipated pension savings of over $50 million.
But the Mayor’s budget that was approved by the Budget and Finance Committee on Wednesday is hardly balanced as the City once again has failed to provide adequate funding for its two severely underfunded pension plans and our failing infrastructure. It even assumes that the civilian work force will forego a 5.5% raise in January and contribute 10% to the cost of its very generous health care benefit.
But little attention has been paid to the City’s governmental balance sheet, its $7 billion of debt, and its stated net worth of almost $5 billion.
However, when the balance sheet and net worth are adjusted for undisclosed liabilities of almost $30 billion associated with the City’s two severely underfunded pension plans and its massive deferred maintenance budget, the City’s net worth for its governmental activities shrinks to a NEGATIVE $25 billion.
The City also has significant investment in its “business type activities” that have a stated net worth of almost $17 billion after accounting for almost $18 billion of debt. These revenue generating operations consist of the three proprietary departments (Department of Water and Power, the Port of Los Angeles, and Los Angeles World Airports), the Sewer Department, and the Convention Center, the debt laden albatross.
However, the value of the business type activities needs to be dinged by about $4 billion to account for the DWP’s unfunded pension liability (based on realistic investment rate assumptions), thereby reducing the value of these revenue generating assets to $13 billion.
Overall, while the stated net worth on the City’s books is in excess of $21 billion, it is actually a NEGATIVE $13 billion when adjusted for all the hidden liabilities that our Elected Elite and their financial wizards have conveniently hidden from public view as they try to hide the fact that they have squandered the legacy created over the last two centuries.
Unfortunately, the Mayor, the Budget and Finance Committee, the City Council, and the Controller have their heads in the sand, unwilling to address the City’s pressing financial issues and operating inefficiencies in a realistic manner, fearing the wrath of the campaign funding union leadership and praying that the City will not blow up on their watch.
The fear of insolvency is real. The City has a negative net worth, has over $25 billion of debt not counting the undisclosed liabilities, a budget that is out of control, and timid leadership that is clueless.
Fortunately, we have Mickey Kantor’s recently formed LA 2020 Commission to investigate the City’s financial situation and to make recommendations on how to stabilize and hopefully improve the City’s perilous financial condition.
The grown-ups on the hopefully independent LA 2020 Commission are also charged with the task of how to create jobs, attract investment and industry, and grow the economy. But that is an academic exercise if the City does not get its act together, balance its budget, fund its pensions, rationalize its work force, and fix its streets and the rest of its infrastructure.
After all, who wants an insolvent partner?
So Mickey, the budget ball is in your court.
*(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee, the Ratepayer Advocate for the Greater Wilshire Neighborhood Council, and a Neighborhood Council Budget Advocate. Humphreville is the publisher of the Recycler Classifieds -- [www.recycler.com](http://www.recycler.com). He can be reached at: . Hear Jack every Tuesday morning at 6:20 on McIntyre in the Morning, KABC Radio 790.) *-cw**
CityWatch
Vol 11 Issue 40
Pub: May 17, 2013
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