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News Link • Economy - Economics USA

Will the City of Los Angeles Declare Bankruptcy This Month?

Bankruptcy is not a bad word – insolvency is! Bankruptcy is a legal proceeding where the court restructures the financial condition of a debtor – balancing its income and expenditures so that it can become successful. Insolvency is the financial condition of a debtor who cannot pay its debts. The city of Los Angeles is insolvent. It cannot pay its debts on time or, for that matter, at any time without drawing down on its reserves. The next days, weeks, months and years will see a dramatic increase in the size of its insolvency. Fire and police pension payments will increase approximately $1 billion within three years. Even this assumes an average of 8 percent return on investments after 10 years of an average 4 percent return. Eighty percent of the city’s budget goes to police and fire – yet there has been little or no attempt to reduce their budgets by creating efficiencies within those departments. The police can cut out the 12-hour workday and reduce its internal bureaucracy. The number of large fires in the city has dramatically decreased since the implementation of strict building codes in the 1970s. This and coordinating firefighters and emergency medical personnel can cut Fire Department costs. Our parks and libraries, the cultural centers of Los Angeles, are being shut in the evenings and on Sundays. The library budget has been cut almost 50 percent. What does this mean for our cultural reputation?

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