The year before Garcetti ascended from council president to mayor in 2013, the city adopted a new retirement tier for civilian employees hired after July 1, 2013 that lowered maximum pension benefits to 75 percent from 100 percent of final compensation. It also limits retiree health care to the employee, excluding dependents. Projected savings over a 30-year period are expected to be $4 billion, with the majority of savings in out years.

 

Strides made by the city include significant progress toward reducing fixed cost burdens for pension and other post-employment benefits such as retiree health care, according to a Moody’s Investors Service report in December.

 

The rating agency affirmed the city’s Aa2 general obligation bond rating in November and upgraded the city’s outstanding real property and lease-backed debt ratings to A1 and A2 from A2 and A3, respectively.

The 2015-16 spending plan estimates that pension and other retirement benefit costs will be $1.077 billion — just under 13 percent of the city’s total spending. That’s a vast increase over pension costs from 15 years ago. But the rise has stabilized, and Santana told reporters that the pension fund for city firefighters would be 92 percent funded by 2020 — a far better figure than in most California cities.

Unions counted on to make concessions

But there are reasons to wonder if the sunny speeches Garcetti has been giving about Los Angeles City Hall’s future are too optimistic. The first is that the city budget will balance in the fiscal year starting July 1 only if Garcetti and Santana win new concessions from public employee unions. The spending plan “assumes that about 20,000 city workers will agree to no raises and many will pay a bigger percentage of their health care costs, but talks with city employee unions have dragged on since their contracts expired last year,” the Daily News reported.

This will be tough to swallow for non public-safety unions, given that police won a four-year, 8.2 percent raise this spring, and given the United Teachers Los Angeles’ success in securing a 10 percent, two-year raise from the Los Angeles Unified School District in April.

The second, much bigger problem is downbeat expectations for the city’s private-sector economy. Garcetti and other city leaders are counting on the local economy to finally begin a strong recovery at a time when pessimism in elite circles has never been higher.

The Los Angeles 2020 Commission, consisting of powerful figures from in and out of government, issued a report in December 2013 that warned of chronic stagnation without sweeping changes:

As the result of two decades of slow job growth and stagnant wages, 28 percent of working Angelenos earn poverty pay. If you add those out of work, almost 40 percent of our community lives in what only can be called misery. The poverty rate in Los Angeles is higher than any other major American city. Median income in Los Angeles is lower than it was in 2007.

 

When it comes to job creation, Los Angeles has not kept pace with the nation or other cities. Our unemployment rate is among the highest for any major city. This is not just a consequence of the Great Recession. We have lagged behind in each of the three business cycles since 1990. Los Angeles is the only one of the seven major metropolitan areas in the country to show a net decline in non-farm job employment over the last decade.

 

Activity in most of our key economic sectors is flat or in decline. We have repeatedly ignored or fumbled opportunities in one of this era’s major growth industries, the intersection of science and engineering — a field where our university-based intellectual capital ought to make us a leader. With the closure of Boeing’s plant in ‡Long Beach, there is no longer a large-scale aircraft, space vehicle fabrication or assembly facility left in the area.

Only key policy change: Much higher minimum wage

Garcetti and other leaders welcomed the report and acknowledged the challenges facing the city’s private sector. But the most significant major policy change since the report’s issuance came just this week, when the City Council approved increasing the minimum wage within city borders to $15 an hour by 2020.

The sharp increase was opposed by business interests, who warned it would make the city’s business climate even worse.

By Katy Grimes

Surprise! Sacramento is on another list of ‘worst run cities’ in the nation.

The website 247wallstreet.com ranked the best and worst run cities in the U.S.

Ranked number 18, Sacramento is sandwiched between Reno and Chicago.

Sacramento’s population is 472,169, has a credit rating of Aa2, which is under review for downgrade, high violent crime per 1,000 people at 7.11 (38th highest), and a high unemployment rate of 14.1 percent (tied- 9th highest).

The rankings were based on population, city’s credit rating, violent crime rates and unemployment.

But that’s not all folks… there are more ‘worst run cities’ in California.

Santa Ana made the list at number 15, with high unemployment at 13.7 percent.

Riverside is number 12, also with a 13.7 percent unemployment rate.

Fresno is number 7, with a credit rating of Baa2, under review for downgrade, and a high unemployment rate of 15.6 percent.

Modesto is number 6 with a 14.6 percent unemployment rate and still suffering under one of the highest home foreclosure markets in the country.

Stockton is number 3 after filing for bankruptcy. It has a credit rating of Caa3, (negative outlook), the 8th highest violent crime rate, and the highest unemployment rate of 20.2 percent.

And San Bernardino made the number 1 position, “where the median home value declined by 57.6% between 2007 and 2011, more than any other large city in the U.S.” The unemployment rate is the third highest, at 17.6 percent.

Seven cities on the national ‘worst run cities‘ list does not bode well for California.

Read the report here. And weep.

Best run cities

The good news is that San Francisco (gasp) made the ‘best run cities‘ list, coming in at number 11, with a balanced budget despite the state’s chronic budget issues.

Fremont is ranked at number 5, with a highly educated population, highest median income of all of the cities, and a large manufacturing base.

Irvine is ranked number 3, with the lowest violent crime, and the most educated population.

Even in California, some city leaders understand the importance of economics.

They were slapping high fives in the offices of state Treasurer Bill Lockyer this week. Why the celebration?  Because California no longer has the nation’s worst credit rating, according to Moody’s Investors Service.

“The reason we’ve improved our standing,” said Tom Dresslar, spokesman for the treasurer’s office, “is because of the actions that the Legislature and the governor have taken last year, with regard to the budget.”

To wit, he elaborated, “They took some major steps to solving our structural deficit, and we started to pay down what the governor calls ‘the wall of debt.’ And those steps have not gone unnoticed by the rating agencies and they have given us credit for those actions.”

Well, not exactly Tom.

First of all, California really did not “improve” its standing. It simply moved from worst to next to worst because Moody’s downgraded Illinois (which, it should be noted, has a Democrat governor and Democrat-controlled state Legislature, just like California).

Also, neither Moody’s nor the other two major credit-rating agencies — Standard & Poor’s and Fitch Group –have really “given (California) credit” for the actions Gov. Jerry Brown and the Legislature took last year on the state budget. In fact, S&P and Fitch continue to rank California’s creditworthiness 50th among the states.

‘Missed Opportunity’

S&P said last summer that the budget the party of Brown enacted amounted to “a missed opportunity” because it failed to address the “backlog of budget obligation accumulated during the past decade.”

Fitch declared California’s fiscal and credit prospects “clouded,” not the least because of “extensive budgetary pressures confronting the state’s constrained financial flexibility stemming from voter initiatives.”

What particularly resonated was Fitch’s admonition that California’s credit rating should not be so low “considering the size and breadth of the state’s economy and tax base” as well as “the strength inherent in a state’s sovereign powers.”

Indeed, California continues to boast one of the world’s 10 largest economies. The state government collects $90 billion or so in annual revenues. If the budget-making process in Sacramento hadn’t long been so dysfunctional, the state would not now be struggling with its structural deficit. It would not have the nation’s worst credit rating.

Dresslar estimated that the state’s structural deficit is $9.2 billion. He also maintained that Gov. Brown’s proposed 2012-2013 budget will eliminate that structural deficit and, in turn, move the Golden State up a tier or more in the credit ratings.

Trickeration

But the governor’s budget relies on the same kind of fiscal trickeration that produced the backlog of budget obligations to which S&P referred. Most noteworthy, he includes $6.9 billion worth of tax hikes in his budget that require the unlikely approval of California voters.

Without those tax hikes, the governor’s budget falls apart, as a new report this week by the state Legislative Analyst’s office attests. And once that happens, we’ll see the same excruciating fight in Sacramento over taxes and spending that we’ve witnessed for far too many years.

Some say that California’s perennial budget problems are unsolvable. But that is not so. All lawmakers need do is study the best practices of the states that the credit rating agencies rank in their top ten.

Aside from their enviable creditworthiness, those states have four things in common:

They control their spending, not letting yearly outlays outpace inflation and population growth. They do not create (or expand) state programs anticipating new revenues that may not materialize.

They prepare for lean economic times by setting aside windfall tax revenues during economic boom times. And they keep their tax burdens among the lowest in the country, recognizing that lower taxes lead to greater economic growth and more overall tax revenue flowing into state coffers.

– Joseph Perkins