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THE STATE OF THINGS - Isn’t it remarkable how little attention is being devoted to Los Angeles’s $1 billion deficit? Shouldn’t the claxons, alarms, sirens, and strobe lights be going off? Especially considering that Karen (smiley face) Bass failed to secure a $1.9 billion bailout from her Democratic sisters and brothers in Sacramento? Why isn’t the City Controller and City Treasurer demanding that Mayor Bass and the somnambulist on the City Council and the contingent of Democratic Socialists haul in the unions to renegotiate their budget-busting contracts?
Of course, nobody in authority in LA would dare blame themselves for the enormous deficit they helped create. No politician would dare castigate the Unions for forcing wage and pension increases that the City cannot afford because they hold the keys to power and fund the campaigns. This perfectly circular firing squad is never mentioned in polite company. So, the usual suspects get blamed, like lower-than-expected tax revenue, wildfires, a slowing economy, legal liabilities, and the exodus of middle-class and high-income earners leaving LA.
The $1.9 billion bailout, if it arrives like manna from heaven, is merely a Band-Aid on a gunshot wound. The City of Angels must strike a deal with the devil to address its unfunded pension liabilities. The most recent accurate information we have, from the Reason Foundation report in 2016 (10 years ago), indicates that LA had an unfunded pension liability of $10.2 billion. This figure pertains to the three main city retirement funds: the Los Angeles City Employees' Retirement System (LACERS), the Los Angeles Fire and Police Pensions (LAFPP), and the Water and Power Employees' Retirement Plan (WPERP), which are now large Ponzi schemes. By the end of fiscal 2025, we will have an estimated $15 billion in unfunded retirement liabilities.
The actual number by the LA fiscal year ending in June may be worse than that, given the stock market's nervous breakdown over tariffs and a feared slowdown in data center spending. For instance, in the fiscal year 2023-24, the city’s pension contributions were reported to exceed $1.2 billion, a figure that increases annually due to unfunded liabilities and actuarial assumptions—further crippling the city's ability to provide a decent quality of life.
In what is emblematic of fiscal mismanagement in LA, the Parking Enforcement Bureau cannot even break even, handing out over $100 million in parking tickets, according to Crosstown, an online local newspaper. However, when adding in all the costs for salaries, equipment, processing, vehicle repair, and pensions, the total cost of collecting $100 million in parking fines jumps to $176 million. This means that we're losing about $76 million a year on parking meter enforcement. Another reason to dislike this “City service.”
With the LA budget resembling a giant sinkhole of woe, maybe it’s time to call the Unions on the rug for their part in this tsunami of red ink. California has strong labor laws that protect the rights of public employees to organize and collectively bargain. The Meyers-Milias-Brown Act (MMBA), enacted in 1968, governs labor relations for local government employees in California, including those in cities like Los Angeles. The MMBA mandates that municipalities and state agencies, such as the City of LA, must negotiate in good faith with recognized employee unions regarding wages, hours, and other terms and conditions of employment. This is state law.
Excluding the Police Protective League and the United Firefighters Unions, which have received significant pay raises and undoubtedly deserve them, most of the blame for our financial turmoil falls on SEIU Local 721 and other labor unions. Labor expenses in the City of Los Angeles account for approximately 80% of the General Fund expenditures and are a primary factor in its current financial situation. This figure sharply contrasts with the private sector, where labor costs generally hover around 30% of total operating expenses. Featherbedding is a term that is not used much anymore but might be appropriate to the current situation. Featherbedding is the unfair labor practice of causing employers to hire more workers than needed for a given job and to pay for services that are not required.
Public sector employees in LA, particularly those represented by powerful unions, have secured compensation packages that offer excessively generous salaries. This is even more evident if you’re a high-level Didn’t Earn (DEI) It hire. These contracts include imprudent pension plans and comprehensive health benefits. Over the past two years, Mayor Karen Bass and the City Council have approved significant pay raises to maintain labor peace through the 2026 election cycle. These increases are projected to add $250 million to the budget in July 2025, further escalating labor costs.
Unions significantly contribute to Los Angeles's budget problems due to the substantial costs associated with salary increases and benefits negotiated in their contracts. Union leaders maintain that the City should not look to them for cost savings. Unions oppose reducing the number of employees on the city payroll and are inflexible regarding automation or spending on private contractors to decrease the union’s current workforce. Unions present the biggest obstacle to reducing waste, outsourcing to cheaper providers, utilizing automation and technology, and discovering ways to make City services cheaper, faster, and more reliable.
Union contracts often bake in with rigid work rules, like mandatory staffing levels or limits on tech replacing labor, which slows down the adoption of automation. In 2018, AFSCME District Council 36, covering thousands of municipal workers, joined SEIU 721 to pressure the LA City Council to prioritize hiring over efficiency measures, citing crumbling infrastructure as proof of underinvestment. One could easily argue that the union’s expensive contracts are one of the reasons we have deteriorating infrastructure. Studies by the National Bureau of Economic Research peg unionized public sector labor costs 15-20% higher than non-union, and AFSCME’s presence correlates with slower tech adoption in cities like LA.
Of course, the real responsibility lies in City Hall, which has approved these inflationary budget-busting contracts without looking to find the revenue to fund such contracts. David Green, who is the president of SEIU Local 721, which represents over 95,000 public sector workers across Southern California, continuously advocates for maintaining or expanding worker protections, opposing furloughs and layoffs or benefit cuts as might be proposed by city officials to mitigate the deficits.
Union contracts are usually finalized in LA during closed-door sessions with politicians indebted to the unions funding their campaigns. These agreements typically have multi-year terms and push the city into long-term spending commitments without appropriate revenue increases to match or performance monitoring benchmarks. The 2024 City deal with the unions is costly—$3 billion over five years by some estimates—and the credit rating agencies are slowly noticing some credit deterioration. Credit rating agencies have put LA on CreditWatch with negative implications. Critics say the current budget is unsustainable, risking layoffs or service cuts later. Green’s defenders argue that it’s fair pay for essential workers in a high-cost city, and vacancies were crippling services.
Finding revenue increases in an already overtaxed city is certainly very challenging. Green’s political influence has made it difficult to privatize numerous city functions, which deprives the City of an opportunity to control its costs. His frequent campaigns against privatization divert much-needed cost-saving reforms. His insistence on resisting concessions and prioritizing worker salaries and benefits over necessary financial flexibility in a cash-strapped City contributes to the looming crisis of Los Angeles's budgetary problem.
Ultimately, the city's labor mess may lead to a Chapter 9 bankruptcy filing, and then all these exorbitant gains and significant benefit awards will be renegotiated. While it is rare and risky for a city or county to go bankrupt, there are precedents, and we might have to take extraordinary measures to save the city from itself. Orange County, California, filed for bankruptcy in 1994 to the tune of $1.6 billion due to the county's treasurer and tax collector, Robert Citron, making poor bets on interest rate futures. Over 3,000 Orange County workers were laid off, and budgets for schools, roads, healthcare, and all public services were slashed. Wall Street treated Orange County’s bonds as toxic waste, which they were. It took Orange County’s taxpayers 20 years to pay off the bonds.
There is a strong need to provide relief because every taxpayer in the City has been overcharged and had their tax payments mismanaged through substandard city service contracts that are never fulfilled or successfully completed. All we have to show for the wasted efforts is deteriorating roads, miles of red tape, high crime rates, a fire department that cannot carry out its mission, an endless homeless crisis, and a lack of affordable apartments. It's only a matter of time before something must give.
With Los Angeles’s budget now a billion dollars in the red - likely an underestimate by 50%- one might wonder why a blue city like LA isn't seeking a DOGE team to eliminate fraud, waste, and abuse. The terms " fraud, waste, and abuse “ are euphemisms for our money - our tax dollars - being stolen and funneled to unions for absurdly generous contracts awarded to NGOs and sweetheart deals, such as the Los Angeles Housing Services Authority giving the CEO’s husband $4,300,000 for contracts for questionable services, with no accountability and certainly no consequences for underperformance. We are left to suffer with poor city services, leading to a poorer quality of life.
Cities with a weaker union presence—like Phoenix—have adopted automated trash collection and outsourced maintenance, cutting costs by 20-30%, according to a 2021 study from the Reason Foundation. Ultimately, you run out of tax dollars and other people’s money. LA can’t keep kicking the can down the road indefinitely. That day of reckoning is probably closer than any of our “elites” wants to admit.
(Eliot Cohen has been on the Neighborhood Council, serves on the Van Nuys Airport Citizens Advisory Council, and is on the Board of Homeowners of Encino and was the president of HOME for over seven years. Eliot retired after a 35-year career on Wall Street. Eliot is a critic of the stinking thinking of the bureaucrats and politicians that run the County, the State, and the City. Eliot and his wife divide their time between L.A. and Baja Norte, Mexico.)
