Los Angeles bankruptcy watch

LA Daily News:

Mayor Antonio Villaraigosa and the City Council have said repeatedly that, come what may, declaring Los Angeles bankrupt is not an option.

But with city leaders avoiding the tough decisions to mend L.A.'s financial health - opting instead for easy fixes that allow the city to limp along for another month or two - some are saying bankruptcy is just the ticket.

For one thing, it could lead to speedier reform of the pension system, which many economists and politicians say is necessary if the city is to prosper long term.

"I've suggested it since 2005," former Mayor Richard Riordan said. "The city, the way it is going, is unsustainable. If they don't do it this year, they are going to have to do it in the next four or five years."

Of primary concern is the city's spiraling pension obligations, which are growing astronomically at a time when city coffers are running out of cash.

"Those will be over $1 billion a year," Riordan said. "The city will not be able to afford it."

Bankruptcy would put the city's pocketbook in the court's hands, which could allow a judge to cut benefits and pensions to powerful union workers - something the mayor and council members have refused to do.

But the mayor and council members say a bankruptcy declaration would be disastrous for the city's image and its residents.

The mayor is a liar. Los Angeles will file for bankruptcy, they have no choice at this time. Sometime next month there will be no paychecks because there will be no money. The mayor is likely calling Obama on the phone daily looking for the massive bailout of all time, but once Obama dips his toe in the bailout waters again, every large town in America will be at the pork barrel.

This is no win for Pelosi. She already blew her share of taxpayer largess on the new entitlement.

But I don't get Moody:

NEW YORK, Apr 7, 2010 -- Moody's Investors Service has downgraded to Aa3, from Aa2, our rating on the City of Los Angeles' general obligation bonds. At this time we have also downgraded each of our ratings on the city's general fund obligations by one notch, resulting in ratings ranging from A1 to A3 depending on the specific security pledge. The downgrade primarily reflects the continued erosion of the city's historically better-than-average willingness and ability to quickly rebalance its budget mid-year. This is a particularly important rating factor for Los Angeles since its balance sheet has typically been relatively weak for the rating level.

What is an aa3?

Aa1, Aa2, Aa3

Moody judges obligations rated Aa to be high quality, with "very low credit risk",^[7] but "their susceptibility to long-term risks appears somewhat greater".^[8]

I am a little confused. How does 'unable to pay city employees' translate into "very low credit risk"

Moody is nuts.

Anyway, the three major California cities will go belly up:

San Diego - Calling what is to come dire and sobering, San Diego city leaders announced that the City faces a budget deficit next year of $179 million.

"The last budget process was tough, this one is going to be even tougher. There's no question," said Kevin Faulconer, chair of the city's budget committee. "With a huge increase in pension payments and a decline in revenues, the city is going to have to make some tough choices."

In the last 15 months, city leaders have trimmed $175 million from the budget. With no where else to cut, San Diego Mayor Jerry Sanders says core city services - fire and police - will not be immune from the budget ax.

"All I can tell you is we're not taking anything off the table," said Sanders. "And that's why I mentioned police and fire, they make up about 55% of the city's budget. So they're going to be having to help out just like everyone else."

Other cities around the state and the nation are facing the same budget shortfalls. In a fact sheet, Mayor Sanders listed several other cities facing major budget challenges. The city of San Jose is looking at a deficit of $169 million, Los Angeles $403 million and San Francisco, $750 million. The president of San Diego Police Officer's Association understands that much of the problem is recession driven, but he says cutting a core service like police means safety may suffer.

Here is the list of the 15 most bankrupt cities. NYC tops the list on a per capita basis, even worse than Los Angeles.