Free Money! Come and Get It.

If you haven’t done so already, do read the op-ed by Richard J. Riordan (former Mayor of L.A.)  and Tim Rutten (former journalist with the L.A. Times), A Plan to Avert the Pension Crisis, L.A. Times, Aug. 5, 2013, at p. A17) What these two gents do there is two-fold: first they outline just how dire are the dire straits that California is in — “California’s giant state pension fund, the world’s sixth largest, continues to assume it will earn 7.75 percent on its investments, even though its actual returns have been less than half that for a decade.” Excuse us, folks, but your faithful servant is only a barefoot city lawyer who is frequently awed by the intellectual puissance of his betters, but isn’t that what one could justifiably call “cooking the books”?

The root of our imminent fiscal calamity is — surprise, surprise — “unaffordable public employee pension liabilities.” It’s not so because we say so; it’s because they concede it. “In California, . . . more than 20,000 state and local retirees receive  annual pensions of more than $100,000 . . .” So if you claim any acquaintanceship with basic arithmetic, to say nothing of the first law of thermodynamics (what you don’t put in, you can’t take out) you might think that the solution is to reduce the absurdly high and plainly unsustainable pension burdens. Yes? Not exactly. According to Riordan and Rutten — “we must avoid demonizing public employees and their unions” and instead let their leaders be born again and “embrace this process.”

And what process might that be? We will let you see that for yourself. Suffice it to say that it involves a new species of bonds, some fast shuffling of state and federal money and, of course, Uncle Sam’s deep pockets. Click here. Uncle would insure this whole shebang by guaranteeing those new bonds that would provide the funds needed to keep those exorbitant pensions afloat, by a new kind of federal insurance, and the states would — what else? — sell bonds to raise money for premiums. But wait! Wasn’t it the states’ sales of bonded debt what got them into trouble to begin with? Like we said, you’ll have to read this for yourself, but the bottom line of this proposal would be a rescue of the profligate state and local pension spending at — ta, da! — “no cost to Washington.” Free money, folks! Come and get it.

We always thought that Dick Reardon is a pretty smart dude (Tim Rutten, a long-time stalwart at the L.A. Times that has never seen a union proposal it didn’t like) not so much. But when it comes to municipal high finance, we guess that nobody is immune to the siren call of free money. So rots of ruck, Dick (and Tim). May the Force be with you, even though for it to work best it requires the ministrations of Obi Wan Kenobi who, so far, has not expressed an opinion on how to get and enjoy a free lunch.

Full disclosure. Long time ago, in a galaxy far away, you faithful servant worked with inter alia Dick Reardon on a land-use case that, were it not for the large stakes, and the gravitas of the personages involved in it, would be way up there in the annals of legal humor. See Robert I. McMurry and Gideon Kanner, Shootout at Warner Ridge, Los Angeles Lawyer, January  1995, at p. 24. It was the kind of $100 million case in which the City of Los Angeles was held liable for a regulatory taking, although once Los Angeles recovered from the shock of that judicial ruling, it was born again, and everything settled promptly. It was described by the L.A. Lawyer editors thus: “When the dust settled on the planning process for the Warner Ridge Ranch, no one was left standing.” A perfect ending for a California land-use case, particularly because the obnoxious city councilwoman who presided over that calamity was denied reelection in the next election, and the lawyers got paid.