Homeless in Arizona

Also the spokesmen for the city police and fire departments along with the spokesmen for the police and fire department unions seem to blame the city ruler's for spending like drunk sailors. But they forget to mention that in almost ALL city governments the number one expense is the wages paid to cops, followed by the wages paid to firemen.

Those two expense usually account for around 60 percent or more of a city government's expenses. One of the articles says "Public safety accounts for nearly 75% of the city's general fund budget"

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Plenty of blame on long road to San Bernardino bankruptcy

Phil Willon and Abby Sewell, Los Angeles Times

July 12, 2012, 6:42 p.m.

Cash was so tight in San Bernardino that potholes went unfilled, burned-out streetlights were left untouched and ball fields languished unmowed.

That was two years ago, when the City Council learned that San Bernardino's $22-million budget shortfall would jump to $38 million by 2012, sending the city into financial ruin.

City leaders slashed the workforce, extracted temporary concessions from labor unions and auctioned off public land. But they failed to heed warnings that those steps weren't nearly enough to address endemic problems in the Inland Empire city. Instead, calls for swift, dramatic action — such as raising taxes or outsourcing the police and fire protection — fell victim to a noxious political atmosphere that has paralyzed City Hall throughout the economic crisis, according to interviews with past and present city officials.

"I told the council two years in a row that, if this continues, we're going to be looking at bankruptcy. I got criticized for bringing up the word 'bankruptcy.' They called it scare tactics," said former City Manager Charles McNeely, who resigned unexpectedly in May. "The politics of that place are just impossible to deal with."

McNeely wasn't surprised when the council, facing a $45.8-million budget shortfall in the current fiscal year, voted Tuesday night to seek bankruptcy protection, the third California city to do so in the last month. San Bernardino is broke, without even enough money to pay employees through the summer.

The financial turmoil in San Bernardino, while in many ways a product of its own politics, illustrates the devastating effect the economic downturn has had on cities and the basic everyday services they provide, Palmdale City Manager David Childs said.

"Palmdale has been hit hard, like many cities," said Childs, past president of the International City/County Management Assn. "We'll get through it. But I can really sympathize with them being on the brink. One or two bad things can put a city over the edge. One or two good things can save them."

The possibility that city actions could lead to criminal charges was revived Thursday, after the Sheriff'sDepartment said it had launched an investigation several months ago into allegations of "possible criminal activity within departments of the San Bernardino city government." Officials did not elaborate. "The investigation is continuing and details will not be released at this time," the statement said.

On Thursday, San Bernardino city leaders were engaged in damage control. "It is important to note that in order to balance the city's budget, deep cuts will have to be made across the board," interim City Manager Andrea Miller said in a statement. "We will continue to provide essential services and are committed to meeting our obligations."The police and fire chiefs of the city held a news conference to reassure residents that public safety will not be compromised.

Shortly after taking the job in late 2008, McNeely and his staff prepared a "most likely case" financial projection laying out the mushrooming budget deficits in the years ahead. McNeely said "any seventh-grader" could see the troubles ahead.

"I don't think anybody was wasting money; there was never money to waste," he said. "The city's revenue base has just been on the decline for years."

Other than Indian gaming, the major employment sources for city residents depend on public funding that has proved volatile during the recession: Cal State San Bernardino and a community hospital, according to a financial report submitted to the council Tuesday. About 80% of the city's taxable parcels are residential, the report said.

The city's unemployment rate is above 15%, compared to 10.9% in the state, according to the report. Meanwhile, more than 40% of city residents receive some form of public assistance, according to Redlands economist John Husing, who advises cities and companies throughout the Inland Empire. Without more jobs or rising property values, there is little way to raise revenue, the budget report warned.

Many of the city's efforts to kick start the city's tax base, declining by more than $16 million a year, have either stalled or been rejected by the politically divided City Council, McNeely said.

San Bernardino's economic development agency paid $13 million for the abandoned Carousel Mall in 2011 after private efforts failed to transform the vacant shopping center into a hip spot for retail and downtown housing. The council rejected tax increases, saying that residents were already feeling the financial pinch, and shot down proposals to install downtown parking meters or have the Police Department run its own impound lot.

Two years ago, Husing told city leaders to consider dismantling the city's police and fire departments and instead contract with the county sheriff and fire agencies. Public safety accounts for nearly 75% of the city's general fund budget.

"The costs for police and fire have tended to crowd everything else out," Husing said. "They immediately started attacking the idea. It just shows how powerful those unions have been in that community." [This is typical of city governments and the wages paid to cops and firemen tend to account for 60 percent or more of city budgets]

Police union President Steve Turner said officers have done more than their share to help bail out the city, agreeing to a temporary 10% cut in compensation. He discounted the escalating employee pension costs, which are expected to increase from $6.5 million to $7.5 million this fiscal year, as a major contributor to the city's financial woes.

"Public pensions are not what's breaking the bank in this city," he said. "It's the mismanagement. Spending money like there's wheelbarrows of it." [Well spending tax dollars like there are wheelbarrows of them and spending the tax dollars on cops and firemen]

Councilwoman Wendy McCammack said slashing the Police Department or turning it over to outside agencies would have been too great a risk.

Instead, she said, the council should have eliminated every other "nonessential" program, including many of those favored by Mayor Patrick Morris, with whom McCammack often clashed. "I voted against at least three of the last six budgets and I did so because I did not believe that they were structurally sound. Unfortunately, I was outnumbered by a majority of the council," she said.

The political divide in City Hall became evident again this week when City Atty. James Penman, who ran unsuccessfully for mayor against Morris, alleged that budget documents might have been "falsified" to hide the city's financial picture. Penman later said he was unsure if there had been deliberate wrongdoing, but added that he turned the matter over to outside agencies to investigate.

The mayor said that he was "stunned" by Penman's statement, saying that he was aware there had been discrepancies between the city's mid-year budget review and audited financial statements, but he characterized it as "sloppy budget analysis."

The financial analysis presented to the City Council this week found that the city's general fund balance had been "erroneously stated for the past two fiscal years." In 2011-2012, the report noted, the city's financial staff reported a $2-million surplus. A year-end audit, however, found San Bernardino had a $1.1-million deficit.

Miller, the interim city manager, said that even without the inaccurate financial reporting, the city would have faced a budget crisis. "Really it's no one's fault, and yet it's everyone's fault," she said.

phil.willon@latimes.com

abby.sewell@latimes.com

Source

Rising costs push California cities to fiscal brink

By Phil Willon, Catherine Saillant and Abby Sewell, Los Angeles Times

July 12, 2012

Facing the same financial stressors that pushed San Bernardino toward bankruptcy, cities across California are slashing day-to-day services and taking other drastic actions to skirt a similar fiscal collapse.

For some, it may not be enough.

San Bernardino on Tuesday became the third California city to seek bankruptcy protection in the last month and, while no one expects the state to be consumed by municipal insolvencies, other cities teeter on the abyss.

"There are likely to be more in the future, but it's hard to know, since a lot of struggling cities may manage to work things out,'' said Michael Coleman, a fiscal policy advisor for the California League of Cities. "Some cities may not go into a bankruptcy, but they may dissolve. They may cease to exist.''

Once rare, turning to bankruptcy has become a painful but enticing option for cities whose labor costs and municipal debt far outpace anemic tax revenues. The Bay Area city of Vallejo began the current trend in May 2008, filing for Chapter 9 bankruptcy protection because, city leaders said, salaries and benefits for its public safety workers were eating up too much of the general fund.

Last month, Stockton became the largest city in the state to seek bankruptcy protection after it was unable to come to agreement with its employee unions and creditors on a plan to close a $26-million gap in its general fund. On July 2, the tiny resort town of Mammoth Lakes filed bankruptcy papers in part because it was saddled with a $43-million court judgment it couldn't pay.

San Bernardino couldn't close a $45.8-million budget shortfall and would be unable make its payroll this summer. Days before Tuesday's City Council vote, the city of 211,00 people had just $150,000 in the bank. The city barely scraped together enough money to cover its June payroll.

The city had largely patched over its growing fiscal ills, exacerbated by the struggling economy, by tapping out its reserves over the last several years, according to a fiscal report submitted to the council before Tuesday's vote.

That 4-2 decision to file for bankruptcy protection was the easy part, San Bernardino Mayor Patrick Morris said Wednesday. Now the city has to pull together a plan to emerge from its fiscal crisis. It has already cut its workforce by 20% over the last four years.

Morris, a former judge elected on an anti-gang platform, says the city may have to dissolve its Fire Department or portions of the Police Department, an unavoidable reality when public safety accounts for nearly 75% of the general fund budget. The city would then contract with county and state agencies for those services.

"I think all possibilities should be on the table," Morris said. "That includes privatizing services; that includes regionalizing services."

Steve Tracy, a fire engineer and spokesman for the city firefighters union, said San Bernardino's labor groups already gave up $10 million in concessions. He blamed the financial crisis on the mayor and former city manager spending money on such pet projects as a new downtown movie theater. [That is wrong!!! Again in most city budges the WAGES paid to cops and firemen is usually 60 percent or more of the city budget]

"Before you start putting blame on the labor groups, get your own fiscal house in order," Tracy said.

Vallejo was in a similar bind when it filed for bankruptcy four years ago. Now Mayor Osby Davis wonders if the painful road to recovery was worth the cost.

The Bay Area city of 112,000 was forced to shut down two of its fire stations and today fixes just 10% of its crumbling roads. Its workforce, including police and firefighters, is about half its pre-bankruptcy size and those people left are "insanely" overworked.

Meanwhile, Vallejo spent $10 million on legal fees. It ended up with employee contracts that Osby thinks the city could have struck more cheaply if it had stayed out of bankruptcy court and turned to the bargaining table.

His advice to other cities on the financial brink? Don't do it.

"It takes an enormous toll on everyone,'' Davis said. "And you have the stigma of being a bankrupt city. How do you come out of being labeled a bankrupt city to one that is a desirable place to live?"

The San Bernardino City Council meets Monday to hash out the painful road ahead, including how to scrape together enough money to sustain city services before officially filing for bankruptcy protection. That could take a month or longer.

The city is expected to declare a fiscal emergency, which would trigger an "emergency exit" clause in the new state law that governs municipal bankruptcies. Otherwise the city would be forced to mediate with labor unions and creditors, an expensive, months-long process that Stockton slogged through without arriving at any agreement.

Karol Denniston, an attorney who helped draft the state bankruptcy law, said the emergency exit was designed for cases such as that of Orange County, which in 1994 became the largest county in the United States to go bankrupt, largely because of an unanticipated downturn in its risky investments.

Meanwhile, San Bernardino is likely to be scrutinized over how it managed to come to the brink of disaster, seemingly so quickly. City Atty. James Penman said budget figures submitted to the council had been fabricated for 16 years. Interim City Manager Andrea Miller was less harsh, saying the city's budget was erroneously said to be balanced for the last two years.

"The real horrible question here is: How do you end up with 30 days of liquidity?' Denniston said. "You have city leaders saying fiscal information was not accurate or reliable. This could create multiple layers of litigation that hurts creditors, employees and taxpayers for a very long time to come."

Rising public pension costs are one of the catalysts pushing cities into fiscal peril. In San Bernardino, the city's obligation to its employee retirement system rose from $1 million in the 2006-07 fiscal year to nearly double that in the current budget year. In three years, those costs are expected to swallow up 15% of the budget.

Pension spending grew an average of 11.4% a year in the state's biggest cities and counties between 1999 and 2010, roughly twice as fast as spending on public safety, social services, recreation, health and sanitation, according to a February report by the Stanford Institute for Economic Policy Research.

Joe Nation, a Stanford economics professor and co-author of the February report, thinks that for at least some cities, insolvency is inevitable unless they can wrest much bigger concessions on salaries and pensions from public employees.

"I think this is the tip of the iceberg in terms of the problem,'' Nation said. "Stockton was spending $12 [million] or $13 million on pensions 10 years ago. By 2010, it was $30 million … and will double again over the next five years, unless something is changed."

Meanwhile, as news of the bankruptcy wafted though San Bernardino on Wednesday, residents feared for the city's uncertain future.

"People are losing their homes because they have no jobs. It's been really tough, so it doesn't surprise us," said Rose Garcia, 46.

But Garcia, a stay-at-home mother, said she and her husband, a dispatcher for Vulcan Materials, are anxious about potential cuts to public safety.

"It's an uncertain feeling we have right now," she said. "We're actually talking about moving."

phil.willon@latimes.com

catherine.saillant@latimes.com

abby.sewell@latimes.com

Source

Stockton Bankruptcy The Result Of 15-Year Spending Binge

Reuters | Posted: 07/04/2012 6:59 am Updated: 07/04/2012 10:18 am

By Jim Christie

SAN FRANCISCO, July 4 (Reuters) - The man in charge of the biggest U.S. city ever to file for bankruptcy is clear about the root of the crisis.

It was a decision that gave firefighters full healthcare in retirement starting on Jan. 1, 1996, s aid Bob Deis, the city manager of Stockton, California.

At the time, the move seemed cheaper than giving pay raises s ought by unions, officials involved in the decision said. When other Stockton employees demanded the same healthcare deal in following years, the city agreed.

Deis, who signed Stockton's bankruptcy filing last Thursday, s lammed the decision to provide free healthcare to retirees as a "Ponzi scheme" that eventually left the city with a whopping $417 million liability.

Before the turn of the millennium, things looked very different in California.

The U.S. stock market was booming, bolstering Stockton's pension funds. Real estate values were about to soar, too, bringing a flood of new tax revenue to the once quiet farming town of about 300,000 people - about 85 miles east of San Francisco - in California's Central Valley.

THE TRADE-OFF

To counter demands for wage hikes from city workers in the 1990s, Stockton offered to extend their health insurance in retirement past age 65 - a benefit they embraced and assumed to be rock solid until the insolvent city's officials put it on the chopping block in a bankruptcy plan last week.

"It was a balancing act," said Dwane Milnes, Stockton's city manager at the time. "The unions wanted retiree medical ... We said if you want to continue your medical for current employees and retirees, you'll have to do it through wage containment."

Milnes, who represented Stockton's retirees in recent talks with City Hall, said the strategy was sound at the time.

"We were satisfied that based on a conservative view of the economy and based on the medical inflation rate we were experiencing in the 1990s, the city could adequately fund retiree medical."

Detective Mark McLaughlin said Stockton's labor unions embraced the trade-off, which in the police department's case helped with recruiting and retention.

"It was an easy sell," he said, adding that city workers believed the money they gave up in pay increases would be able to pay for the health benefit.

SPEND, SPEND, SPEND

Other U.S. cities have also experienced boom and bust like Stockton.

But analysts and investors generally see Stockton as an extreme case of fiscal mismanagement over the past two decades.

Daniel Berger, a senior market analyst at Municipal Market Data, a unit of Thomson Reuters, said last week, before the bankruptcy filing, that the municipal bond market had viewed Stockton's fiscal problems as "a slow-moving train wreck." The possible bankruptcy filing, he said at the time, was seen as an "isolated occurrence."

As the 2000s advanced, Stockton continued to spend freely with the support of voters, politicians from both parties, employees and bondholders. Rating agencies were quiet about any risks and only started to downgrade the city's creditworthiness two years ago.

Generous pension deals were offered in the early 2000s.

City officials, looking to transform their sleepy downtown, approved spending on large projects to raise Stockton's profile and turn it into a bedroom community for San Francisco and the Bay Area.

Homebuilding went into overdrive. Home prices skyrocketed to a median of nearly $400,000 in 2006 from a median of $110,000 in 2000.

Stockton's revenues jumped, too. Its general fund, which pays the city's operating costs, swelled to $186.4 million in 2007 from $139.1 million in the 2001 fiscal year.

ROYAL PENSIONS

Like other cities in California, Stockton chose to offer many public safety workers the same benefits as those mandated by a state law for highway patrol officers. The change allowed police officers to retire at 50 with pensions based on 3 percent of final pay for each year in service, up from 2 percent before.

City employees in other unions also received more generous pensions with eligibility to retire at age 55 - with 2 percent of final pay multiplied by the number of years of service.

This is in contrast to the vast majority of private-sector workers who cannot receive Social Security p ayments b efore they are at least 62.

By the 2000s, Stockton's full-time employees were also entitled t o free healthcare for life.

Still, there seemed little cause for concern.

With huge stock market gains from the 1990s, city officials were confident about meeting pension costs. After all, the Standard & Poor's 500 Index index quadrupled between early January 1990 and late March 2000.

Police and firefighters continued to win further concessions. Generous allowances were offered to police officers to buy their uniforms, bonuses were introduced based on years of ser vice, and retiring officers cla imed cash payments for unused vacation days - accumulated over years in some cases.

Warning signs grew that retiree healthcare costs were rising fast. The city miscalculated the rate of inflation for medical costs during the 2000s.

But Stockton's leaders burned through their reserves and began planning new construction projects to make the city more appealing to new residents.

A $47 million bond issue in 2004 was meant to finance construction of a sports and concert arena to revitalize t he city's do wntown. The arena was built, but it ended up losing money.

A downtown high-rise building was acquired for a new City Hall. A revamp of Stockton's downtown riverfront was financed, along with other projects, by more than $100 million in debt between 2004 and 2006 by the city's redevelopment agency.

Stockton ended up absorbing that debt after California's governor eliminated local redevelopment agencies last year.

It seems unlikely that Stockton will be able to sell those real estate assets at a gain.

"Most of the assets that look nice are under water," said Deis, the city manager.

A $125 million pension obligation bond sold by Stockton in 2007 also backfired. Stockton passed the proceeds to the California Public Employees' Retirement System, or Calpers, to pay down unfunded liabilities at the pension fund. Then the fund suffered steep losses when financial markets plunged in 2008 and early 2009 and left Stockton with a 23 percent loss on its invested proceeds and in debt to investors who bought the bonds.

HOUSING BUST'S TRAIL OF PAIN

The worst damage was done by the housing crash. Median home prices in Stockton slumped to $110,000 in 2009, erasing nearly a decade's gains. General fund revenues in the current fiscal year are projected at $155 million, just above their level in 2001.

The real estate bust made Stockton one of the foreclosure capitals of the United States. Property-tax revenues tumbled. The city began its new fiscal year on July 1 with its 1,420-strong workforce down by a quarter from three years earlier.

Debt service has ballooned to $17.2 million a year from $3 million just six years ago.

Stockton has already defaulted on about $2 million in bond payments since February.

Recriminations about Stockton's budget need to be set aside to avoid the kind of lengthy bankruptcy suffered by Vallejo, an other California casualty of the boom-to-bust cycle. It emerged from bankruptcy last year after three years in Chapter 9 that cost it $10 million in legal fees.

Stockton has earmarked $3.5 million for bankruptcy court expenses b ecause it h opes for a quick e xit from Chapter 9.

Bondholders, employees and retirees will be hurt in the process. Axing retiree medical benefits is now central to efforts to restructure Stockton's finances, Deis said.

Many retirees are in a state of shock about that.

"I believed the city would honor its commitments," said Geri Ridge, 56.

The former clerk retired last year after 26 years with Stockton's police following a second heart attack.

Ridge lives off a monthly pension of $1,895. She learned on Friday that she now faces a $576 monthly premium for her health co verage - or $1,277 a month if sh e keeps her daughter on her plan.

She has no idea of how to pay for the coverage, which the city will fully eliminate in a year. And she has harsh words for Deis.

"I want him gone. I'm hoping whoever gets elected into office fires him, bankruptcy or not," Ridge said.