Los Angeles' budget gaps may force dramatic change

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By Jim Christie

Los Angeles must take dramatic steps in coming months to bring its budget back into balance, including measures to slim the size of its government and reduce how much it spends on pensions for retired employees, the city's top budget official said on Wednesday.

Los Angeles, California's biggest city, is seeing a steep drop in revenues fueled by the state's 12.5 percent unemployment rate, a slump in consumer spending, an uncertain housing market and a weakening commercial real estate sector.

Fitch Ratings has grown so concerned about Los Angeles' budget woes that on Tuesday it downgraded the city's general obligation debt to AA-minus from AA.

Fitch said it expects the city's economic decline to impede financial recovery. Among problems it cited were high unemployment, sales tax weakness, assessed value losses, high home foreclosure and negative amortization mortgage exposure.

Miguel Santana, the city's administrative officer, said he was not surprised by the downgrade. He is intimately aware of how the city's finances are faring, and they're in dire shape, he told Reuters in a telephone interview after briefing the city council on options for balancing the city's books.

Los Angeles' budget gaps may force dramatic change