Business Update with Mark Lacter

Los Angeles is no Detroit

The first hearing in Detroit's bankruptcy starts tomorrow.  The city has called on the judge to stop pensioners from filing lawsuits that could gum up plans to restructure billions of dollars in debt.

Steve Julian: KPCC business analyst Mark Lacter, could this happen in Los Angeles?

Mark Lacter: The local economy has been picking up, Steve, but former Mayor Richard Riordan, among others, have been concerned about L.A.'s pension obligations - and the fact that the amount of money coming into city coffers is not keeping pace with the amount of money going out.

Julian: That's why so many services have been cut back?

Lacter: It's also why so many city jobs have disappeared.  This is what happens when workers are able to retire in their early 50s and have full pension coverage for the rest of their lives.  You're shelling a lot of money.  But whatever L.A.'s problems, they are not in the same galaxy as Detroit's problems - that's pretty obvious when you look at the Detroit bankruptcy filing.  Look, cities only work if they have solid foundations - what's important to know about Los Angeles is that it remains an extraordinarily diverse economy.

Julian: And a wealthy one.

Lacter: Well, property taxes are expected to bring in more than a billion-and-a-half dollars for the current budget year, and considering how home prices keep going up, the number could be even higher.  This is also a city that has the nation's biggest port complex, the third-busiest airport, and some of the best research universities in the world.  Per capita income in L.A. County is about $42,000; Detroit is at $15,000.  L.A.'s crime rate has been falling, while Detroit has the highest crime rate of any major U.S. city (the average response time for an emergency call is 58 minutes).

Julian: Now, before you start sounding like a press release, isn't L.A.'s jobless rate still over 11 percent?

Lacter: For the city of LA, yes, and many Angelenos continue to live at or near the poverty level.  The fact is, this is an extremely bifurcated city; the pie is not being sliced up very evenly.  It's also worth noting that as long as the city has to shell out so much money to cover pension shortfalls (and that could go on for years), the city's operating budget will be adversely affected.  But bankruptcy?  You never want to say never when it comes to the economy.  But, L.A. is obviously not Detroit - not even close.

Julian: But, what about that split between haves and have-nots?

Lacter: You're seeing it with the June employment numbers.  L.A. County's jobless rate was 9.7 percent, which is more than two points higher than the national rate.  Seems like another lifetime ago, Steve, but in 2006, the L.A. county unemployment rate was 4.4 percent.  What's distressing about the current numbers is how they show the inequity of the recovery.  The jobless rate for folks with less than a high school degree is in the double digits, while the rate for college graduates is in the low single digits.  Young African-American and Latino men are more likely to be out of work than white men.  Unemployment in L.A. County varies tremendously by location - anywhere from 3 percent to nearly 20 percent.

Julian: Also by industry, I imagine.

Lacter: Just look at folks in entertainment, finance, and technology who are really doing well.  And, look at the real estate market, with the median price in L.A. County jumping to $425,000 - more than 30 percent higher in June compared with a year ago.  One reason prices have taken off is that there aren't enough homes on the market - and, when a property does go up for sale, buyers are willing to bid over the asking price and they're also willing to pay all cash.  That is great if you have the money.  And, it's also good for real estate brokers, the interior designers, the contractors, the gardeners, not to mention the local governments that will be collecting more taxes from those home sales.

Julian: But then, people are priced out by these inflated prices.

Lacter: That's right.  In early 2012, L.A.'s affordability index was 56 percent (that's the number of households that could afford a median priced home).  This year, it's down to 46 percent.  This kind of push and pull between wealthy people in L.A. and pretty much everyone else is going to be played out in transportation, housing, and jobs.  The question isn't so much L.A.'s resources - it's how to apportion them.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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