Los Angeles is at risk of going bankrupt by 2014, says the city’s former mayor, Richard Riordan.
“Unless we make dramatic changes, we could quickly spiral over a cliff, and literally everyone will be bankrupt,” he told CNBC.
In the next year, pension costs for city workers will more than double to almost $1.25 billion from $500 million now, Riordan says.
Combine that with a jobless rate of 12.3 percent, far above the national rate of 9.5 percent, and you have a recipe for disaster.
Part of the problem is poor fiscal management on the part of city officials, including Mayor Antonio Villaraigosa, who added 3,000 government jobs during the recession, Riordan says.
In addition, the stock market’s surge in the 1990s gave city officials unrealistic expectations for pension-fund performance, he says.
“The stock market did so well they assumed it was going to do so well forever,” Riordan said. “Well it hasn't.” So pension costs have exploded. “And we can’t even come close to paying for that,” Riordan said.
As for bankruptcy, “It’s not the worst thing in the world,” he said. That’s because it might force city officials to get finances under control.
On the national level, we’re already bankrupt, says Lawrence Kotlikoff, an economist at Boston University.
“Neither spending more nor taxing less will help the country pay its bills,” he wrote in a column for Bloomberg.
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