MuniLand

Reuter’s reporters Tim Reid, Cezary Podkul and Ryan McNeill wrote a great analysis of the fiscal and political troubles of bankrupt San Bernardino, California. They zeroed in on the high cost of wages and pension benefits for fire and police safety workers:

In bankrupt San Bernardino, a third of the city’s 210,000 people live below the poverty line, making it the poorest city of its size in California. But a police lieutenant can retire in his 50s and take home $230,000 in one-time payouts on his last day, before settling in with a guaranteed $128,000-a-year pension. Forty-six retired city employees receive over $100,000 a year in pensions.

Almost 75 percent of the city’s general fund is now spent solely on the police and fire departments, according to a Reuters analysis of city bankruptcy documents – most of that on wages and pension costs.

When you look more deeply, the high salaries and pension benefits for safety workers are crushing the city, as I have already written:

San Bernardino Mayor Patrick J. Morris said on Southern California Public Radio yesterday that the city’s public employee wages were especially “lucrative.” Although city employees agreed in 2010 to a 10 percent wage reduction for two years, the firemen’s union had told him to “pound sand” and sued the city to restore the previous wage level. It’s clear from this episode that even though San Bernardino firefighters were paid an average salary of $146,359 in 2010, they are entirely unwilling to help the city escape its fiscal black hole.

Things are heating up in the Golden State as bankrupt San Bernardino has stopped making payments to CalPERS, California’s public employee pension system. CalPERS, of course, had something to say about it. Reuters’ Tim Reid reported:

“These [pension] payments are required to be made under California law,” Calpers said in an e-mail to Reuters. “If Calpers and the city cannot resolve the missed payments, Calpers will assert its rights and remedies available under applicable law.”

Calpers spokeswoman Amy Norris said in a telephone interview that if the payments were not made and continued to fall due, “we will pursue collection through legal action.”

The City Council of San Bernardino, California, has declared its intent to file for bankruptcy and has issued a fascinating document that outlines the steps it would take to regain fiscal solvency. It’s a very creative and orderly attempt to reshape the finances of the government.

Proposals include a tax on phone service, estimated to raise $6.7 million dollars a year; a comprehensive asset plan to set market-rate rents for some city-owned properties and below-market-rate leases for others to create incentives for development; an increase in fees for false alarms that police respond to; and the outsourcing of tree trimming, street sweeping, graffiti abatement, streetlight maintenance and trash collection.

Although these ideas could raise new revenues, they do not really address the most burdensome parts of San Bernardino’s budget.

San Bernardino, California made headlines this week for two distressing reasons. First, its city council voted to move toward declaring Chapter 9 municipal bankruptcy. Next, the city’s attorney made the shocking revelation that San Bernardino’s books have been cooked for 13 of the past 16 years, meaning that the surpluses the city had reported were, in fact, deficits.

San Bernardino is the third California city to move toward bankruptcy in the last few weeks, but the issue of bad accounting elevates this bankruptcy to a whole new level. The California Legislature enacted a new law last fall, AB 506, that requires 90 days of mediation between the city and creditors prior to a new municipal bankruptcy filing. But it is hard to see how that will be possible in San Bernardino’s case, since there are no legitimate financial filings to negotiate from. Moreover, the city doesn’t have the ability to pay its bills for 90 days during mediation. We’ve entered the twilight zone of muni workouts here.

Putting aside the issue of the city’s inability to follow proper accounting standards, San Bernardino may have a political leader in its mayor who is willing to take on the public unions and get necessary concessions from police officers, firefighters and other city employees. In the video above, Mayor Pat Morris discusses how the city will need to renegotiate salary and pension deals with city workers. Generally, salaries account for 70 to 80 percent of a local government’s cost structures and matter much more than debt service. Cities in California have the right to break wage and pension contracts with workers in bankruptcy. The problem is that we haven’t seen any political leaders willing to stand up to the unions.