Milken SOS: Could Los Angeles Go Bankrupt?

Here’s a sobering thought:  could the City of Angels go bankrupt?  Following up on recent comments by former LA Mayor Richard Riordan that Los Angeles was on the way to bankruptcy unless it got concessions from unions, a morning panel entitled: “Time for Change:  How to Reform the State’s Budget Crisis” at the Milken Institute’s 2009 State of the State conference , seemed to agree, “yes.”

“Sadly, I think he’s correct,” said Former Governor Pete Wilson.  “In many cases Chapter 9 [Municipality bankruptcy] is available to local governments and many will do so [declare.]  Vallejo up north has already done it….and San Diego is working to resist it.  Dick Riordan is right.  Not just municipalities, school districts, special districts of all kinds.”  This dovetails  his earlier comments regarding the state budget, which was finally nominally balanced with tremendous cuts in education, “We’re a state.  We cannot declare bankruptcy.  Local governments can, we cannot.”

California State Treasurer Bill Lockyer said the typical state pension is $1800 per month, and that “current pension benefits are probably unsustainable.”

The panel had started on a positive note, albeit superficially, about how the state had finally closed a $60 billion budget gap.  The biggest slashes were in education, with Michael Genest, director of the California Department of Finance saying, “all of these cut are temporary,” but clearly no end date for the cuts were mentioned.

John Chiang, state controller, said that amid a backdrop of 12.2 percent unemployment, state revenue from personal income, sales and corporate taxes had severely dwindled, noting that “California has not been net cash positive since July 12, 2007.”

And those are some highlights from a fairly frank talk.  “It’s a train wreck and it’s just getting worse,” Lockyer opened by saying. “For those that think that eliminating spending is the answer, 75 percent of the California budget is transferred to local governments, meaning education, healthcare and prisons.”