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LA WATCHDOG - We are exposed to Intergenerational Theft every day. Our lunar crater streets, our cracked sidewalks, and our poorly maintained parks have a deferred maintenance budget of $7 billion. Unfortunately, this is an obligation that we are passing onto the next generations of Angelenos and is the result of a series of unsustainable budget busting labor agreements.
We are not, however, exposed daily to the unfunded pension liabilities of the City’s two pension plans, the Los Angeles City Employees’ Retirement System (“LACERS”) and the Los Angeles Fire and Police Pensions (“LAFPP”), except when the City develops its annual budget in April and May. This is when the City discloses its Annual Required Contribution (“ARC”) to the City’s two pension plans. This year, the ARC is over $1.5 billion, an increase of 15% ($200 million) from five years ago.
As of June 30, 2025, the total unfunded pension liability (including retiree medical benefits) was $7.6 billion (88% funded) based on actuarial assumptions If the assets were marked to the actual market, the liability decreased to $5.3 billion (92% funded), reflecting the impact of the bull market.
But these shortfalls are understated because they rely on an overly optimistic investment rate assumption of 7%. If the City used an investment rate assumption of 6% as suggested by Warren Buffett of Berkshire Hathaway fame and fortune, the unfunded liability would increase to $14 billion (81% funded).
[Note: since July 1, 2025, the S&P 500 has increased by 19%. This will have a major impact on the stock portfolios of the two pension plans and their unfunded liability. Markets are also known to lose value.]
Earlier this year, the LACERS board lowered its investment rate assumption to 6.75%, a level recommended by its actuary. This will increase the ARC by $108 million, an amount that blindsided the budget gurus in City Hall. But it was the right decision because it will begin the long process of lessening and eventually eliminating this liability.
On the other hand, the LAFPP board, under pressure from City Hall, punted when asked to lower the rate to 6.75% because it would have required the City to increase its ARC by $70 million. This was the wrong decision even though LAFPP is fully funded based on the 7% investment rate assumption, but short $3.6 billion (90% funded) when assuming a more realistic 6% rate of return.
The failure of the LAFPP board to lower the investment rate assumption because it would cost the City an additional $70 million is another indication of the fiscal irresponsibility of our elected elite who have given away the store to the City’s public sector unions. We cannot continue to support intergenerational theft, the dumping unfunded liabilities on the next generations of Angelenos. This why we need real reform that includes open and transparent labor negotiations, an ordinance (and later a ballot measure) that prohibits the City from entering into any labor agreement that will cause a deficit, and realistic long-term infrastructure and financial planning.
(Jack Humphreville writes the LA Watchdog column for CityWatch, where he covers city finances, utilities, and accountability at City Hall. He is President of the DWP Advocacy Committee, serves as the Budget and DWP representative for the Greater Wilshire Neighborhood Council, and is a longtime Neighborhood Council Budget Advocate. With a sharp focus on fiscal responsibility and transparency, Jack brings an informed and independent voice to Los Angeles civic affairs. He can be reached at [email protected].)
