Los Angeles Teeters On Brink Of Bankruptcy

The City of Los Angeles needs to make up a deficit of more than $200 million by July 1.
The City of Los Angeles needs to make up a deficit of more than $200 million by July 1.
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The latest tale of financial crisis in California is playing out in Los Angeles, which faces a budget shortfall approaching $1 billion. Unless the city can find a remedy, it may be insolvent soon. Across the city, people are already feeling the impact of budget cuts.

The latest tale of financial crisis in California is playing out in Los Angeles. The city faces a budget shortfall approaching a billion dollars, and unless it can find a remedy soon, it may be insolvent by midsummer.

As officials cut spending, everyone's feeling the squeeze.

Feeling The Pinch, In West L.A.

The neighborhood of West Los Angeles is a quiet, middle-class community that even its most committed residents would describe as nondescript. One of its few distinguishing attractions is a mini-civic center with a little courthouse, police station and satellite city hall. They ring a public plaza that should be a lot nicer than it is.

Standing there at dusk, neighborhood council president Jay Handal points out seven burnt out street lamps. They are "supposed to protect our citizens who walk through here in the evening," he says, "and they've been out for weeks and weeks." And after a few days of rain, he says, most of the plaza was under a foot of water because the drainage system hasn't been fixed in year.

"It's because of the budget issues that we have," says Handal.

Cuts Threaten Luxuries And Necessities

The "budget issues" Handal mentions are a euphemism for cuts, and they affect more than just the quality of life — they could affect life itself. The fire department has been reducing labor costs by taking several engine crews and paramedic units off the job one day a week, rotating the cutbacks through stations around the city. So depending on when and where an emergency strikes, help may have to come from farther away.

The cuts are likely to get more severe. Los Angeles still needs to make up a deficit of more than $200 million by July 1. The city is also facing a shortfall of close to half a billion dollars in the next fiscal year. The political struggle over how to close those gaps led Mayor Antonio Villaraigosa to make an unprecedented appearance before the City Council this week.

More Layoffs To Come

Villaraigosa entered the council chamber to a chorus of boos from city workers angry that he had ordered city officials to eliminate 1,000 jobs and said there may be thousands more to come.

"I do not see a scenario where there will not be layoffs," the mayor told the council, "not only in this year, but next year as well."

City officials have drawn up a list of positions on the chopping block. These run the gamut from assistant city attorneys to clerks to truck drivers to calligraphers — yes, Los Angeles has a staff of five calligraphers for drafting proclamations and such. Villaraigosa implored the council to realize the urgency of the city's financial situation.

"We will not be able to meet our obligations sometime in the summer if we don't act now," he said, avoiding the word "bankruptcy."

But earlier this month the City Council voted to delay possible layoffs for 30 days while other options are explored. Council member Janice Hahn said she didn't see how getting rid of 1,000 city workers would help anything.

"That's a thousand people that aren't paying their mortgage; that's a thousand people that aren't shopping in our stores," she said, to enthusiastic cheers from the city workers in the audience. "I don't want to contribute to this bad economy," she continued, "by laying off people in what I think is the worst possible time."

Privatizing City Properties

Meanwhile, the council and the mayor are closer to reaching agreement on other options, particularly leasing to private companies a broad array of city assets — from the convention center to city garages to the zoo.

But political analyst Darry Sragow thinks Los Angeles may have a hard time cutting a favorable deal with the private sector right now.

"If you're behind the eight ball, somebody's going to figure out they can take advantage of you and they probably will," says Sragow. "You don't want to be bargaining when you're in a panic mode."

Los Angeles is hardly the only city going through hard times. Across the country local tax revenues have tanked along with the economy. But two things make Los Angeles different. First, initiatives passed in California make it difficult to raise taxes. And Sragow says that because of the sheer size of Los Angeles, a city bankruptcy could have impacts felt across the nation.

"If you look at the stock market, it gets freaked out by potential problems in Greece," he says. "You could imagine what it'll do about potential problems in L.A. So it could have a very dramatic impact nationally."

The dramatic impacts that Los Angeles is known for usually just draw crowds to the local multiplex. But in the city's real economic life, the thrills, chills and narrow escapes are likely to continue for years. And a happy ending is not guaranteed.

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