Friday, November 16, 2012

San Berdoodoo

The City of San Bernardino has always repulsed me on a personal level while not being able to look away.

From suburb to basket case: How California city traveled the road to ruin

SAN BERNARDINO, Calif. -- When this sun-drenched exurb east of Los Angeles filed for bankruptcy protection in August, the city attorney suggested fraudulent accounting was the root of the problem.

True.

The mayor blamed a dysfunctional city council and greedy police and fire unions. 

True.

The unions blamed the mayor. 

False.  The mayor is "their guy."  They are blaming themselves.  

Even now, there is little agreement on how the city got into this crisis or how it can extricate itself.
"It's total political chaos," said John Husing, a former San Bernardino resident and regional economist. "There is no solution. They'll never fix anything."
Yet on close examination, the city's decades-long journey from prosperous, middle-class community to bankrupt, crime-ridden, foreclosure-blighted basket case is straightforward — and alarmingly similar to the path traveled by many municipalities around America's largest state. 

True and scary.  More on this in a follow up post.  

San Bernardino succumbed to a vicious circle of self-interests among city workers, local politicians and state pension overseers.
Little by little, over many years, the salaries and retirement benefits of San Bernardino's city workers — and especially its police and firemen — grew richer and richer, even as the city lost its major employers and gradually got poorer and poorer.

True.  Notice how the connection is not drawn however.  

Unions poured money into City Council elections, and the City Council poured money into union pay and pensions. The California Public Employees' Retirement System (Calpers), which manages pension plans for San Bernardino and many other cities, encouraged ever-sweeter benefits.

True.  CalPERS is not without blame here.  Neither is the insane practice of compensation comparisons which induces a wage spiral as all lower bound wages are brought higher thus shifting the bound ever upward.  

Investment bankers sold clever bond deals to pay for them. 

False.  IBs facilitated the transactions and collected the fees but never actually were sellers.  That said, the fees charged are beyond usurious.  

Meanwhile, state law made it impossible to raise local property taxes and difficult to boost any other kind.

False.  It is not in any way shape or form impossible to raise property taxes.  It happens all the time all over the State and usually passes even when supermajorities are required.  

No single deal or decision involving benefits and wages over the years killed the city. But cumulatively, they built a pension-fueled financial time-bomb that finally exploded.
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.

In the dark
San Bernardino's biggest creditor, by far, is Calpers, the public-employee pension fund. The city says it owes Calpers $143 million; using a different calculation, Calpers says the city would have to pay $320 million if it left the plan immediately.
Second on the city's list of creditors are holders of $46 million worth of pension bonds -- money borrowed in 2005 to pay off Calpers. The total pension-related debts are more than double the $92 million owed to the city's next 18 largest creditors combined.

Got that?  San Berdo took out a loan to pay off a pension funding arrears.  Why not just work out the same terms with CalPERS?  Glad you asked.  CalPERS expects 7.5% return.  The bond was significantly less than that.  Does everyone see the fatal flaw in this debt shuffle?  

Complicating matters were obscure budgeting procedures that left residents in the dark. The word "pension" doesn't appear once in the most recent 642-page budget, and retiree costs are buried in detailed departmental line items.
"I've been asking for years for the pension costs," said Tobin Brinker, a former council member and pension-reform advocate, who lost his seat last year to a challenger backed by nearly $100,000 in contributions from the fire and police unions. "I still don't know the number."....

The article goes on with more and is worth reading.  

12 comments:

W.C. Varones said...

Did you ever get off the freeway around Baseline and G Street?

Magic. Pure magic.

Rob Dawg said...

Please, don't make me laugh so hard! I'm still recovering.

Interesting Real Estate trivia. Why is it called "Baseline?" Tom Stone knows because it is on every RE exam.

Cinco-X said...

Don't forget Winona...

sm_landlord said...

Hey Rob, where did you link this piece from? I don't see anything that looks hot (although that truck in the picture looks like it's about to overheat).

Had to leave you this link to go with the post:
https://www.youtube.com/watch?v=H8zVaLuJI6U

Rob Dawg said...

Sorry SM. The new posting format is giving me fits. If you want you can always go back to HCN where the jackals are wondering why after getting rid of the lions they are getting hungry.

http://openchannel.nbcnews.com/_news/2012/11/14/15150362-from-suburb-to-basket-case-how-california-city-traveled-the-road-to-ruin?lite

Thomas Stone said...

Good grief. I haven't seen the word "Baseline" since I took the exam.I do deal with "Metes and Bounds" pretty regularly.I'm glad your blog is active again, come over and give me some grief at "Bay Area Real Estate Trends" blog sometime. Honest criticism is welcome, I have a lot to learn.

sm_landlord said...

It's pretty difficult to have sympathy for San Ber'dino: after all, the idiots that sank it were elected by the people that live there. And as the song I linked points out, it's always been a mess. That lyric was probably written in the late '60s.

When Compton goes down, it's going to be interesting to see what happens. I'm pretty sure that Lost Angeles won't do anything until it's too late either. That sales tax hike is not going to help, people can just buy stuff elsewhere. We don't buy anything that costs over $50 in LA County any more, and that number is going down, not up.

Rob Dawg said...

"Good grief. I haven't seen the word "Baseline" since I took the exam.I do deal with "Metes and Bounds" pretty regularly."

For those of you who have lives the "Baseline" is the east-west line from whence the southern half of the state records property boundaries. Oh dear, I said whence. Last time I said that I was pilloried for being pompous. Oh dear, I said pilloried...

Cripes, I just cannot win.

Rob Dawg said...

"We don't buy anything that costs over $50 in LA County any more, and that number is going down, not up."

Something about gooses and golden eggs.

The "proposals" coming out of Sacramento regards tax hikes are getting truly alarming. Looks like the vehicle registration "fee" is going way up. It's a fee not a tax despite being based upon value.

sm_landlord said...

"The "proposals" coming out of Sacramento regards tax hikes are getting truly alarming. Looks like the vehicle registration "fee" is going way up. It's a fee not a tax despite being based upon value."

The idiots still don't get it. We moved one business out of LA county, and another out of state. A third business will go one way or the other depending on how the numbers work. The IP is already offshore (Ireland). WTF are they thinking?

JP said...

> We moved one business out of LA county, and another out of state.

OK OK I get it: I'm an idiot for moving my biz here.

:)

Rob Dawg said...

They think they can turn up the heat under the frog just a little bit more. They are fatally incorrect.