If
Stockton Is Broke, Then Why Isn’t San Diego?: Steven Greenhut
2012-03-02
By
Steven Greenhut
Stockton,
California, which is heading toward the first steps of Chapter 9 bankruptcy, is
described as a crime-racked wretch designated by Forbes magazine as the most
miserable city in America.
But
it would be wrong to believe that the troubles in the city of almost 300,000
residents in the agricultural San Joaquin Valley are not necessarily a sign of
things to come in more upscale municipalities across the state.
Unfortunately,
the financial mess in Stockton echoes problems throughout California, even
though public-sector union leaders and Democratic state legislators are in
denial about this reality. In cities as affluent and diverse as San Jose and
San Diego, municipal finances are hitting the wall, driven by unsustainable pension
debt and health-care promises made to government workers during more flush
economic times.
Stockton
has not been a prime location since the Gold Rush, but only a few years ago it
was a reasonable destination for commuters who couldn’t swing the prices in San
Francisco, about 80 miles west. Now the murder rate is at record highs, and the
police union is in a pitched battle with the new city manager. The debt-laden
downtown redevelopment area looks like a ghost town, and the city is littered
with foreclosed properties.
Stockton
is also in the news as the test case for a new state law intended to put the
brakes on municipal bankruptcy. It’s a reminder not just of how far and fast a
city can fall, but also of problems that are festering everywhere.
‘Ponzi
Scheme’
“There
was no money set aside to fund those commitments,” Stockton City Manager Bob
Deis told Capital Public Radio in reference to $760 million in city debt and
unfunded liabilities. “While that was a legal decision they made over 20 years,
it was an unsound decision and it has similarities to a Ponzi scheme.”
Blaming
past councils, Deis pointed to a health-care plan that pays the entire cost of
care for every city employee and spouse for life, after only one month on the
job. “In my 32 years of managing finances for various local governments, I have
never heard of a situation like this,” he added.
As
Bloomberg News reported, the city “granted employees some of the state’s most
generous benefits, and now has 94 retirees with pensions of at least $100,000 a
year – more than twice as many as some comparably sized California cities.”
Statewide
there are more than 15,000 California government retirees who are members of
the $100,000 pension club. [That is $15,000,000,000 each year]
For
instance, the new state law requires a 90-day mediation period before
bankruptcy can be declared, a watered-down version of a union-backed bill that
would have required approval by a committee before cities could proceed with abrogating
their debt loads. Previously cities, such as the similarly crime-plagued
Vallejo on the northeastern edge of the San Francisco Bay Area, could declare
bankruptcy on their own. Vallejo recently emerged from bankruptcy without seriously
reworking its pension plans, however, which is a reminder to bankruptcy
advocates that it can be helpful but
won’t
solve everything.
The
state’s pro-union forces aren’t content slowing the bankruptcy process. They
are committed to halting any serious reforms that would keep cities from
reaching that last-ditch process.
Reforming
Pensions
In
beachfront San Diego, which has long been the poster child for pension abuses
after a previous city council underfunded the pension system, reform-minded
officials have placed a pension overhaul they call CPR – Comprehensive Pension
Reform -- on the ballot in June. The measures would put new employees in
a 401(k)-style plan, require larger contributions from city employees, restrict
pension spiking and would cap for five years the amount of compensation used to
calculate pension benefits. This is a city where most of the payroll budget
goes to retirees.
Not
only are the unions gearing up for a campaign fight, but they allege that the
very act of placing a pension-related voter initiative on the ballot is an
“unfair labor practice.” They took their case to an unelected state panel, the
Public Employment Relations Board, which filed an injunction to stop the
election. Fortunately, a superior court judge nixed that idea, but it shows the
lengths to which unions will go to stop reform, not to mention their
undemocratic mindset.
In
previous weeks, pension reformers in California dropped plans for an initiative
to change the system after the labor-friendly California attorney general
provided a deceptive title and summary to their measure, thus creating a difficult
hurdle to overcome given that voters rely heavily on those descriptions.
In
San Jose, Democratic Mayor Chuck Reed is part of a growing movement of
progressives who realize that without pension reform every other city service
is in peril. Relying on a city charter provision that sets only minimum benefit
levels for city employees, Reed is pushing something that the state’s
good-government Little Hoover Commission says is necessary -- cuts in benefits
for current workers. Public employee unions recently filed a complaint with the
San Jose elections commission alleging that Reed provided a “knowingly false,
misleading and deceptive fiscal year 2015-2016 city pension contribution cost
of $650 million.” Such harassment is reflective of a union movement
uninterested in constructive reform.
Going
Nowhere
Meanwhile,
Democratic legislators at the Capitol are operating under the same mindset.
Democratic Governor Jerry Brown’s serious but modest pension reforms gained the
backing of the state’s Republicans, but are going nowhere in a Capitol dominated
by Democrats. Assemblyman Roger Dickinson, a Sacramento Democrat, even
introduced a Public Employees Bill of Rights, which received a firm rebuke from
the Sacramento Bee’s liberal editorial page: “Survey after survey shows that local
and state public employees enjoy some of the best benefits -- and strongest job
protections -- of any public workers in the nation. Given that, why does
California need a Public Employees Bill of Rights?” The
answer is that the state’s legislators are so beholden to public sector unions
that they are oblivious to the financial meltdown all around them and aren’t
about to do anything before more cities’ finances hit the wall.
The
unfunded liabilities are so large that it’s unlikely that an economic rebound
will correct a problem long in the making. Even when the economy was doing
well, legislators continued to increase benefits beyond the ability of
taxpayersto pay for them.
Writing
in the Bee this week, Stanford professor Joe Nation, a former Democratic
assemblyman, argued that “from Stockton to San Diego, government pension costs
are crushing local governments.” The article explained: “Based on economic and
finance standards used everywhere except in the public pension world, the top
24 independent pension systems are collectively $136 billion in debt and have
only 54 cents for every dollar they owe. In nearly every municipality, employee
pensions are being prioritized over libraries, parks, street maintenance,
health care and public safety.”
Poor
cities, such as Vallejo and Stockton, are going to face fiscal disaster first,
but the problem is spreading across California, and there’s nothing much the
unions can do once cities start running out of money.
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