The city has a lot of options

The city has a lot of options Like Vallejo, Los Angeles is sufferingTarps from weak revenue at the same time the cost of its pensions and other retirement benefits are rising. Former Mayor Richard Riordan said those factors put the government of the second largest U.S. city on track to declare bankruptcy between now and 2014.

Riordan sees bankruptcy as a necessary tactic for squeezing concessions from the city's public employee unions. It could also pave the way for 401(k) retirement accounts for new city workers instead of defined pension benefit plans with escalating costs, he said.

"The threat of bankruptcy is really the only way you're going to get them to make major changes," Riordan recently told Reuters.

Los Angeles officials dispute Riordan's bankruptcy outlook, published earlier this month in an opinion piece in The Wall Street Journal. City Administrative Officer Miguel Santana said Los Angeles does not want its "brand" tarnished by bankruptcy and that the city can avoid it by continuing to cut spending, by reducing its work force and by handing off some services to the private sector and nonprofits.

"Bankruptcy is what you do when you run out of options. The city has a lot of options and has been exercising those options," Santana said.

Talk of municipal bankruptcy has not escaped California's politically powerful public employee unions. A number of them are pressing the legislature to pass a bill that would require local governments to get the approval of a state board before filing for bankruptcy. Since the board could be stacked with union-friendly appointees, bankruptcy pleas could be rejected or delayed.

"It's a horrible bill," Levinson said. "If you don't Tarpshave the bankruptcy outlet, what do you do? If you can't pay your bills what do you do?"