BANKRUPTCY defines failure and an inability to address a problem through other means. The city of Los Angeles would have a very difficult time going to court and declaring poverty. A judge would look at L.A.'s millions of dollars in assets and the city's ability to raise taxes to meet its obligations, and be bewildered by a bankruptcy claim.
The pension fund is a trust and we are not "creditors," as in the private sector, that would have to wait in line to have a judge decide what amount is due to each claimant. No one denies L.A.'s ability to put a ballot measure before the voters to change pensions for prospective city employees, but trying to go after the pension contracts of current city employees and retirees would be difficult.
The city of Vallejo recently filed a Chapter 9 bankruptcy in order to reorganize its financial situation, but did not change pensions for current employees or retirees.
In the early 1980s, the city of L.A. attempted to change the pension benefits for their current safety member employees (Tier 2) and were warned that it would be illegal to break the contract. During that time, L.A. was in financial difficulty and inflation was high, so they wanted to change the uncapped cost-of-living formula that was in place at that time. The city put the pension benefit change before the voters, labeling it as "protecting fire and police pensions." Voters passed the measure, believing they were saving the pension fund.
The Police Protective League and the United Firefighters of Los Angeles filed a lawsuit against the city for breaking their contract. The unions won at the trial court level and again when the city appealed that decision. L.A. did put a ballot measure before the public to change the pension benefits for prospective city safety employees, and has done that again on several occasions creating Tiers 3, 4 and 5 pension benefits. I'm sure they will do so in the future.
A majority of the funding for the L.A. Police and Firefighters Pension Fund comes from the return on pension fund investments, in addition to salary contributions from active city police officers and firefighters, which is currently 8-9 percent of their salary.
Yes, the city's obligation to the pension fund will increase in coming years, but this was a well known fact when the city continually approved various contracts with city employees in prior years, and again when the public approved the changes in pension ballot issues placed before them.
But to offset those costs, spending should have been adjusted elsewhere in their budget.
Safety is the city's top responsibility to the public. Other projects are nice, but are replaceable or can be delayed.
The city of L.A. has much to do before it attempts to use bankruptcy. It's not a silver bullet; labor issues do not just go away. It is not clear that pay and pension contracts can be thrown out, there are unknown territories that neither the city nor labor can predict the outcomes. Also, there is a legal requirement prior to filing for good faith negotiations to occur to avoid insolvency. Can anyone honestly say that has occurred?
Bankruptcy has many other downsides. It damages the city's reputation, would spark lawsuits from the unions, it's expensive, and drives away business.
The most important thing, however, is keeping one's word and honoring the contract the city made with the police and firefighters who put in their years of service with the belief that they could count on what was promised. Many of these safety officers have paid the ultimate price to the citizens of Los Angeles in fulfilling their part of that contract.
George V. Aliano, a retired LAPD captain, is president of the Los Angeles Fire and Police Pension Commission.