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.