The City of Angels faces a fiscal cliffhanger. Mayor Karen Bass’s failure to secure an outright victory in the primary election ensures a run-off, a scenario that has the bond markets twitching. As a 20-year veteran of the City’s financial trenches, I see this as more than a political squabble.
It is a stark reminder that California’s profligate spending habits and tax-and-spend policies are driving capital flight at a time when the Federal Reserve is already wrestling with inflation. The run-off will force Mayor Bass to defend her record on homelessness, housing affordability, and the city’s ballooning pension obligations. The market is watching: Los Angeles’s credit rating is on a knife-edge, and any hint of fiscal irresponsibility will send gilt yields soaring.
The irony is that while the mayor campaigns on social justice, the invisible hand of the market is already pricing in higher risk. Capital is fungible, and if LA cannot offer a stable business environment, it will drift to lower-tax jurisdictions. The run-off is not just a political contest: it is a stress test for California’s economic model.
The bottom line: voters will decide between more of the same or a course correction. But given the city’s addiction to public spending, do not bet on austerity. The run-off will be a war of attrition, and the market will be the ultimate referee.
