Editorial: Pension reform a growing need in public sector » Ventura County Star

A growing mountain of evidence points to the need to reform public employee pensions in California.

The latest signs came within the past week as public pension systems reported meager returns on their investments. This means cash-starved state and local governments probably will be forced to shovel more dollars to pay for retirees’ benefits in the future.

Monday, the giant California Public Employees’ Retirement System, or CalPERS, the nation’s largest public pension fund, reported it made a 1 percent annual profit on its investments in the latest fiscal year. That was far lower than CalPERS’ official forecast of 7.5 percent.

That disclosure followed an announcement the previous week from the California State Teachers’ Retirement System. CalSTRS reported making 1.8 percent on its investments in the fiscal year that ended June 30, well below the organization’s 7.5 percent official forecast.

In Ventura County on Wednesday, similar disappointing news was revealed. The Ventura County Employees Retirement Association, or VCERA, said it had a 1.3 percent return on its investments in the last fiscal year. That’s just a preliminary figure and the final number might be as high 1.5 percent, officials said. Either is far short of the official forecast of 8 percent.

(This month, coincidentally, the trustees of VCERA approved a proposal to lower the target figure to 7.75 percent on grounds that 8 percent seems unrealistic.)

As some officials like to point out, retirement systems have posted double-digit returns in good years. They caution against rushing to try to gauge the full effect of these latest one-year returns.

But what is already known about pension problems is sobering. Pension costs for state and local governments have grown dramatically over the years. They’re gobbling up a larger share of government budgets while other public programs and services are starved for dollars and are being cut back or eliminated.

And the outlook is troubling. Ventura County’s unfunded liability for pensions is between $775 million and $1 billion; CalPERS has about $85 billion in unfunded liabilities and CalSTRS has about $64.5 billion.

At the state level, Gov. Jerry Brown has offered a 12-point plan to reform pensions. Republican lawmakers soon endorsed it, but Democrats have been slower to come around. The governor’s plan would raise the retirement age, increase workers’ contributions to their pensions and force other changes. The administration says the changes could save the state between $4 billion and $11 billion over the next 30 years.

At the county level, employee contribution toward their own retirement also have increased, and policies have been adopted to limit “spiking” — boosting a pension through actions a worker can take during the final year of employment.

More needs to be done, both locally and at the state level. The governor’s plan and local reforms are only a start, but it is vital to begin in view of these increasingly heavy public liabilities.

via Editorial: Pension reform a growing need in public sector » Ventura County Star.

New issues challenge janitors union – Houston Chronicle

As it tries to ramp up public pressure against cleaning companies, the union seeking a new contract for 3,200 Houston janitors is meeting impediments it didn’t face six years ago when it won its first contract.

The Service Employees International Union has expanded impromptu strikes at the large office buildings its janitors clean. It also has disrupted meetings and has conducted traffic-blocking demonstrations that have led to 18 arrests as it seeks to increase what it calls “street heat” against business owners and cleaning contractors.

For several reasons, however, the janitors aren’t much closer to wage increases and other benefits than they were when the union left the bargaining table in mid-May, two weeks before its contract expired.

Union contractors don’t control as much of the cleaning market as they did in 2006, for one thing. And despite escalating walkouts, buildings are still getting cleaned. SEIU also faces distractions in Chicago, where city officials are considering awarding cleaning duties to a nonunion contractor at O’Hare International Airport.

“I don’t sense the same kind of pressure” as in 2006, said management lawyer Bill Bux of the firm Locke Lord. That year, he said, some clients were “scared to death” about such job actions as picketing and disruptions in buildings.

“Now they’re realizing SEIU is a paper tiger,” said Bux, who isn’t involved in the negotiations.

And, he said, it’s harder for the union members to win sympathy in an economy where many people work full time at lower wages than the union janitors.

In 2006, five union companies controlled 72 percent of the local market for cleaning offices larger than 100,000 square feet.

Today, union companies control 67 percent of that market, according to SEIU spokeswoman Renee Asher.

Six years ago SEIU was negotiating on behalf of 5,300 cleaners, compared with the 3,200 today. And the SEIU counts 40 percent of those as members.

Asher believes the strike will be settled when the big building owners – who want to be perceived as good corporate citizens -tell the contractors to pay higher wages. It will take pressure from the community, she said.

But Julius Getman, a labor specialist at the University of Texas at Austin School of Law, speculates that SEIU has been focusing more on a top-down hierarchy rather than building from the bottom up.

“If you’re doing a sit-down and you are not having the rank and file participate, that’s a bad sign,” said Getman, referring to this week’s arrests in Houston of several out-of-state protesters – none of whom were janitors.

“It’s like ‘Hamlet’ without Hamlet if you don’t have your members committed to the union and willing to struggle on its behalf,” said Getman, author of “Restoring the Power of Unions: It takes a Movement.”

In a recent letter to its customers, the Houston Area Contractors Association said strike participation has been limited to a handful of one-day actions at selected sites and that the work is still getting done.

“Although the SEIU has been touting high participation, we estimate that some 98 percent of available staff have ignored the purported ‘city-wide strike,'” according to the letter.

Asher disputed the notion that janitor participation is weak.

“Building owners always say that,” she said.

At least 400 Houston janitors are on strike, said Asher, adding that even replacement workers have walked out.

The janitors, who earn a top wage of $8.35 an hour, are seeking $10 an hour. While the contractors and janitors were far apart on the wage issue, another point is a deal-breaker.

Union officials object to contractors’ interpretation that a clause in the previous contract, which contractors want included in a new one, would allow them to pay less-than-union wages if they were bidding for a job against a non-union contractor.

“Contractors could bid non-union anytime and anywhere,” said Asher. “It would lower standards tremendously.”

The janitors are represented by SEIU Local 1, which is based in Chicago. Tom Balanoff is the president of the local and the chief negotiator for the janitors in Houston.

He and Local 1 have had their hands full in Chicago, however, as the city is weighing whether to accept a cheaper bid from a non-union cleaning company at O’Hare Airport. The move would mean the loss of jobs for union janitors.

Sarah Hamilton, a spokeswoman for Mayor Rahm Emanuel, said the city is still evaluating its options, but must award the contract to the lowest “responsible” bidder.

via New issues challenge janitors union – Houston Chronicle.

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Cleveland firefighters union: Don’t train our dispatchers to help out swamped EMS

CLEVELAND, Ohio — Cleveland’sambulance service dispatchers answer more than 100,000 calls a year for medical and fire emergencies — talking frantic callers through chest pains, injuries and childbirth during shifts that routinely stretch to 16 hours or longer to meet operational needs.

Meanwhile, firefighter dispatchers sit in the same room at the communications center, waiting for their EMS counterparts to triage their calls and alert them when fire trucks must be deployed.

The workload disparity is a relic of a failed attempt at integrating ambulance and fire services during the administration of Mayor Jane Campbell, who served from 2002 through 2005.

But EMS union officials complain that the department’s team of civilian dispatchers are now so overworked and exhausted that it has triggered a domino effect of dispatchers calling in sick to recover from a week of multiple double-shifts answering trauma calls. That, combined with the typically elevated call volume of the summer months, requires subsequent shifts of dispatchers to work longer hours than scheduled.

In response, the city began training a half dozen firefighter dispatchers this week to pitch in and manage incoming calls, said Assistant Safety Director Edward Eckart. The measure is considered a stopgap en route to building an entirely civilian dispatch team to handle all police, fire and EMS calls and eliminating the need to transfer callers from one department to another.

Firefighter union officials, however, have filed a grievance against the dispatch training, arguing that once the firefighters begin answering emergency medical calls, they will work for EMS, outside their civil service classifications.

That arrangement would violate the city’s contract with the fire union and create “conflict, confusion and uncertainty in the workforce,” as well as “safety issues related to unity and chain of command,” as the dispatch team is subjected to both unions’ policies and procedures, the grievance states.

The grievance is pending before interim Fire Chief Timothy O’Toole. And in the meantime, the city will continue training the fire dispatchers to classify calls and coach callers through their crises using checklists for each type of emergency, Eckart said.

But Stephen Palek, president of the EMS union, said the grievance — and others that the fire union filed in recent months, demanding the city agree to formally negotiate its renewed effort to merge the two departments — stands in the way of improving public safety.

Previous Plain Dealer coverage

  • Integration of Cleveland fire department and EMS hinges on fire union cooperation, city officials say (May 18, 2012)
  • Cleveland fire, ambulance merger faces obstacles (Nov. 17, 2011)
  • Welcome merger of fire, EMS: Plain Dealer editorial (Nov. 13, 2011)
  • Cleveland begins moving toward merge of fire and EMS services (Nov. 8, 2011)

“I am a union leader, entrusted to protect the rights of our membership,” Palek said. “But sometimes the wellbeing of the public outweighs union contracts, and we have to be flexible to make sure the public is receiving adequate resources while we amend the overall problem. I’m not proud of the fact that I have to go to another bargaining unit to do my work. But I do realize that there’s more at stake, and it’s public safety.”

The conflict over the proper way to merge the fire and EMS services, arises after city auditors identified numerous payroll abuses in the Fire Department. A special investigator last month recommended the city pursue criminal charges against five firefighters who, according to his investigation, had been illegally paying colleagues to work their shifts while continuing to collect salaries and benefits.

Fire union officials have accused Mayor Frank Jackson’s administration of using the audits’ findings to justify trampling the union’s collective bargaining rights on the way toward integrating the departments.

In May, EMS union members voted to concede their work jurisdiction and allow firefighter paramedics to ride in ambulances and provide emergency medical care. By making the concession, the union granted the city the flexibility to form three “combo units” — each consisting of a fire engine equipped with advanced life support and an ambulance to transport patients to the hospital.

Adding the new teams could decrease run times from as long as 20 minutes or more to four minutes, Eckart said. And the model would bring the city one step closer to a combined EMS and fire department, in which fire trucks and ambulances would be dispatched using a highly coordinated, efficient system that maximizes resources and saves time, he said.

The city posted job openings for firefighters interested in staffing the combo units.

But the fire union filed a grievance, demanding the city treat the integration as grounds to reopen its contract and determine the details in arbitration.

The union asserted that when the contract was last negotiated in 2011, city officials indicated they were unprepared to discuss the terms of the integration because they were still researching the possibilities. So the city insisted on including a clause in the contract that would allow the parties to revisit the subject at the right time, the union said in its grievance.

Now the city is trying to circumvent that process altogether, the grievance asserted.

O’Toole denied the grievance. And the fire union took its complaint to the State Employee Relations Board, which deferred the grievance to an arbitrator.

While the matter is pending, city officials announced this week that Jackson has decided to move ahead with his backup plan to staff the three ambulances — hiring 56 new emergency medical technicians this fall.

Fire union President Frank Szabo said in an interview Friday that city officials’ refusal to formally negotiate while hiring the EMTs raises questions about their commitment to the proposed merger.

“I’ve heard the city say they’re committed to the integration,” Szabo said. “But now they’re beefing up the Division of EMS in an apparent effort to not integrate. The city keeps saying they’ve made these offers to sit down at the table and negotiate. But before that happens, I’m hearing through the media what their plans are.”

Szabo balked at Palek’s intimation that the fire union is more concerned about union politics than public safety and said that training firefighters to handle EMS calls amounts to a change in working conditions that must be reconciled with the union contract.

Eckart said the city has sent the fire union five formal, written requests to negotiate and discuss the details of the integration. But the union has remained uncooperative, he said.

The EMS union “has gone out of its way to work with the city,” Eckart said. “It has helped us move forward. And I’m always hopeful that we’ll eventually be at the same place with Local 93.”

Mayor Of Bankrupt California City Explains Where She Failed – Business Insider

Charles’ Murray’s Losing Ground was that most incentives in life are negative, in that if you don’t do X you will starve or freeze or whatever. Thus, you learn to be thrifty, nice, and hard working to simply get by.

The most common complaint by businesses as to why they fail is that their  banker stopped lending or seized their collateral; if they just had more time things would have turned around.

Promising large pensions is one of those things that keeps increasing future liabilities, and if you simply plan based on cash flow–including borrowing–you will hit your constraint with probability=1. Bankruptcy seems to be the only realistic constraint.

Here’s a now bankrupt city mayor explaining a minor lacunae in her management style:

Stockton Mayor Ann Johnston voted for these expensive measures when she served on the city council. ‘We didn’t have projections into the future what the costs might be…I learned that you don’t make decisions without looking into the future’… ‘Nobody gave thought to how it was eventually going to be paid for,’ says Mr. Deis, the city manager.

Who knew?

via Mayor Of Bankrupt California City Explains Where She Failed – Business Insider.

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Steven Greenhut: Bankrupt cities suffer for officials’ foolishness

By STEVEN GREENHUT / Special to the Register

SACRAMENTO – First, Vallejo, in 2008. Next, Stockton, then Mammoth Lakes and, now, San Bernardino and soon, perhaps, Compton. As Orange County Supervisor John Moorlach told Bloomberg News, the bankruptcy dominoes are starting to fall. One California city after another – following a decade-long spree of ramping up public-employee pay and pension benefits, as well as redevelopment debt – are becoming insolvent.

And the state’s legislators have nothing constructive to offer.

Article Tab:  Graffiti mars a lake viewing area of the city of San Bernardino's Seccomb Lake and Park on July 12, 2012 in San Bernardino, Calif. The San Bernardino City Council voted to file for Chapter 9 bankruptcy protection.
Graffiti mars a lake viewing area of the city of San Bernardino’s Seccomb Lake and Park on July 12, 2012 in San Bernardino, Calif. The San Bernardino City Council voted to file for Chapter 9 bankruptcy protection.
GETTY IMAGES

California’s exclusively Democratic leaders not only are unwilling to rein in the costs of benefits for their patrons, the public-sector unions, they have been erecting roadblocks in the paths of localities that want to fix the problem on their own. Yet all the political hurdles in the world cannot fix the basic problem of insolvency.

Stockton navigated the new process created by a state law requiring a 60-day period of negotiations before a municipality could file for Chapter 9 bankruptcy.

That period is over, and the city – a hard-pressed port on the edge of the California Delta – has become the largest city in the country to pursue municipal bankruptcy. The cause was a pension system eating up 30 percent of the budget, an absurdly generous retiree medical program and excess bond debt for pension obligations and redevelopment projects.

Soon after, Mammoth Lakes decided to pursue bankruptcy. That city’s cash crunch resulted from losing a lawsuit over development. Although not tied to public-employee compensation, the situation was caused by city officials who preferred to play developer rather than tend to the nuts-and-bolts duties of city government – a long-term problem in that eastern Sierra vacation town. In 1996, Mammoth Lakes lost a court case after it declared its downtown area blighted because of excess urbanization, in a ruling the judge said exemplified the misuse of redevelopment power.

The latest city to opt for bankruptcy is San Bernardino, which has declared a fiscal emergency. That step allows it to evade the mediation period mandated by state law. The city simply doesn’t have the cash to keep operating. As Bloomberg reported, “San Bernardino and its agencies have more than $220 million of debt, including $48.6 million of taxable pension-obligation bonds, according to financial statements.” Pension-obligation bonds are used by cities to pay ongoing pension expenses, yet San Bernardino’s problems show that a city cannot borrow its way out of debt.

Other big cities, including Los Angeles, are talking more openly about the bankruptcy option. Not long ago critics who mentioned the B-word were considered Chicken Littles.

A current talking point is that these cities couldn’t control what happened to them. The Riverside Press-Enterprise reported: “The city of San Bernardino’s financial woes are a direct correlation to a torrent of foreclosures in the Inland area of Southern California, the national foreclosure tracking firm RealtyTrac said Thursday. ‘Property taxes plunged in San Bernardino because of an avalanche of foreclosure activity during the recent housing bust,’ said RealtyTrac vice president Daren Blomquist.”

There’s no doubt San Bernardino and Stockton – ground zero for the subprime mortgage crisis – suffered from the problem described above. But, during the housing bubble that built for years before the crash, what did those cities do with the resulting surge in property tax revenue? We know – they squandered it on increased compensation for government employees, on redevelopment projects and other questionable spending. They squandered a windfall and now depict themselves as victims of circumstance.

The real culprit is foolish decision-making. Stockton, for instance, refused to take advantage of an exemption in prevailing-wage laws – a strategy that could have saved it money but would have angered the powerful unions.

The housing bubble hit the hardest in cities inland from the growth-controlled major metropolitan areas. When housing prices went up in Los Angeles and San Francisco, developers moved inland, where it was easier to get the permits necessary to respond to the demands of the marketplace.

But even coastal cities are struggling. Los Angeles is not a victim of the foreclosure crisis. Pension costs in San Jose – where the housing market has rebounded thanks to a healthy tech-based economy – rose 350 percent in 10 years and now consume 20 percent of the general-fund budget. San Jose voters approved a pension reform measure last month to stem the fiscal bleeding.

Joe Mathews, writing for the Prop Zero blog, debunks San Bernardino leaders’ allegations blaming the state for the city’s its fiscal problems: “Local elected officials who complain about a lack of state money have things backwards. The state of California is relatively spare in its spending, compared to national averages. California’s local officials are, by contrast, big spenders, at or near the national lead in compensation for local workers, especially law enforcement.”

Mathews misses a big point – California state government spends its money poorly – but he is right about local-government wastrels, who busted the bank on public-safety pay and benefit packages and now are looking to cast blame anywhere they can.

Bankruptcy is not a great option but, at least, it gives cities a chance to get their house in order and start fresh. Unfortunately, Vallejo and Stockton refused to tackle existing pension debt in their bankruptcy reorganization plans. Orange County emerged from bankruptcy in the 1990s in better shape than ever, but, as writer Chris Reed explained on the website Calwatchdog.com, subsequent boards of supervisors then began spending like crazy on public-sector compensation.

Bankruptcy cannot stop future officials from wasting tax dollars. But when there’s no money, there’s nothing left to do. In Scranton, Pa., a judge issued an injunction to stop the mayor’s plan to begin paying all city employees minimum wage. But there’s no money left to pay any more than that, the mayor said. The city gladly will pay more as soon as it has the cash.

Only when the money runs out will cities find the necessary solutions.

That’s perhaps the saddest commentary on the situation in California cities these days.

Steven Greenhut is vice president of journalism at the Franklin Center for Government and Public Integrity.

PETER GORDON: Georgia city avoids financial danger- The New Haven Register – Serving New Haven, Connecticut

SAN Bernardino, a city of more than 200,000 in Southern California, declared bankruptcy recently.

Municipal bankruptcies are rare, but not unprecedented. Vallejo, Calif., in the San Francisco Bay area, filed for bankruptcy protection in May 2008. Jefferson County, Ala., sought bankruptcy protection in November 2011. Stockton, Calif., population 300,000, filed for bankruptcy June 26. Other cities, including Harrisburg, Pa., stand at the brink.

It doesn’t have to be. Residents of Sandy Springs, Ga., can attest cities can provide residents with all necessary services at an affordable price if they abandon public employment.

Stockton’s problem was twofold: the housing bubble burst, reducing property tax revenues, and it bought into the notion it could spend itself into prosperity by spending on economic development and revitalization. Private investors weren’t willing to risk their money, so the city took on the projects.

When private developers won’t go it alone, the market is sending a powerful signal about a project’s profit potential. Stockton’s political establishment acted as speculators with public money, and they lost.

The politicians also had been betting on continuing increases in property tax revenues. In 2008, as the housing market was starting its collapse, the U.S. Census Bureau reported that property taxes accounted for $397 billion, or 72.3 percent, of local tax revenues around the country. In California and other areas with above-average property value increases, local officials counted on these revenues to pay for raises and benefits for public employees.

They made a bad bet. The housing bubble burst and property tax revenues plummeted.

Some cities are doing fine.

Sandy Springs, Georgia’s fifth largest city, incorporated less than 10 years ago, has, in the words of The New York Times, handed off “to private enterprise just about every service that can be evaluated through metrics and linked into a contract” — by outsourcing and privatizing, in other words.

As the Times noted, this raises a basic question: What is local government for? One answer is to provide steady jobs with good wages. Sandy Springs rejected that idea.

Oliver Porter, a retired AT&T engineer who served as interim city manager when the former Fulton County community was incorporated at the end of 2005, wrote in an article: “Imagine starting a new city of over 90,000 people with only two employees. We did it.”

Porter explained the challenge was to create a midsize city virtually from scratch. “It was obvious that an alternative model was required,” he asserted.

A few cities, he noted, use private contractors to provide services such as road maintenance, water works and trash collection, but “no city as large as the future Sandy Springs” had ever contracted for just about everything, except police and fire protection — the city is required to provide that itself under Georgia’s constitution.

While surrounding cities have experienced severe budget problems during the downturn, Sandy Springs has enjoyed large surpluses and built up a reserve fund that stood at $21 million at the beginning of 2010.

During its first 3½ years in existence, according to Porter, Sandy Springs successfully created a police force and fire department, paved more roads than Fulton County had in the previous 20 years and opened several new parks. Outside contractors, which Porter considers partners, provide most services.

Not every American city can be a Sandy Springs, but others should try. Without reforms, more bankruptcies are virtually certain.

via PETER GORDON: Georgia city avoids financial danger- The New Haven Register – Serving New Haven, Connecticut.

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Cities in financial trouble: debt defaults are still rare

By Matthew DeBord

Stockton, CA Leads Nation In Rate Of Foreclosures

Justin Sullivan/Getty Images

A deserted section of downtown Stockton. The bankrupt California city has shown a willingness to default on its debt, according to Moody’s.

With four California cities in the past two months either declaring bankruptcy (StocktonMammoth Lakes, and for all practical purposes San Bernardino) or making noises about declaring bankruptcy (Compton), it’s easy to conclude that we’re on the leading edge of a wave of Chapter 9s that will sweep across the state.

But the fact is that municipal bankruptcies are exceptionally rare. This is one of the attractions of the $3.7-trillion municipal bond market, which hasn’t been signaling a wave of cities going bust, nor steeply discounting the debts of cities that are broke (cities in bankruptcy don’t have to default on their debts — they can keep right on paying as they move through Chapter 9).

However, Moody’s, one of the big U.S. rating agencies. put out a report yesterday titled “Recent Local Government Defaults and Bankruptcies May Indicate A Shift in Willingness to Pay Debt.” In it, the Moody’s analysts write that they “expect the vast majority of rated municipalities” — and for Moody’s that’s 8,500 cities — to “muddle through and pay their debts.”

BUT:

[U]nrelenting pressures on municipal finances have forced a few severely distressed localgovernments to make tradeoffs that ultimately resulted in default.  While negative credit pressure is widespread, the most severely distressed speculative grade-rated municipalities face pressure emanating from a combination of factors, notably multi-year declines in housing prices, high foreclosure rates, weak underlying demographics, recurring operating deficits and in some cases management missteps including fraudulent financial reporting.

[…]

In the current environment, as more municipalities approach the economic or political limit to raising taxes or adjusting spending, we could see an increase in defaults and bankruptcies over the next few years. We continue to watch closely the events in Stockton, San Bernardino, Scranton and elsewhere for a potentially more widespread trend of defaults.

I called up David Jacobson, a Moody’s spokesperson, for some additional insight.

“Even distressed cities are still trying to make every effort to pay debt obligations,” he said. “Detroit, a city that’s on the edge, is making all sorts of accommodations to ensure they can pay their debts.”

But then he explained why Moody’s generated the report: “What it gets into is that we’re starting to notice some fiscally distressed municipalities become more willing to stop paying their debt obligations. It’s their willingness to pay, not their ability to pay, that’s notable. That’s what we’re seeing in Stockton.”

Stockton stopped paying some of its debt prior to entering a state-mandated 60-day mediation period before declaring bankruptcy. And the bankruptcy budget it created last month contains no provision for debt service, so Moody’s anticipates a default by September 1.

The distinction between willingness to pay and ability to pay is important because the assumption on the part of the bond markets is that cities want to protect their access to credit and don’t want to have their bonds rated lower than investment-grade by Moody’s or other rating agencies. Investment grade bonds can be bought by big institutional investors and the likes of university endowments; sub-investment grade, or “junk,” bonds generally can’t.

Once bond buyers realize that the issuers of debt aren’t putting them at the front of the payment line, they can retaliate by forcing munis to offer higher rates to borrow money. This is how the risk-compensation game is played, and it explains why cities prioritize their debt payments.

In fact, cities almost never bail out on their debts. The Moody’s report cites exactly one example in its ratings universe between 1970 and 2011 — Cicero, New York — electing to default on debt not out of ability to pay but willingness to pay.

But the times, the may be a-changin’. Cities may figure that bankruptcy is a good strategic option, enabling them to get rid of debts and obligations much as corporations learned to in the 1980s — and like American Airlines, continue to today.

However, there’s still something grimly special about the California cities that are in or headed to bankruptcy. For one thing, according to Moody’s, they don’t have the usual risk factors.

“What cities in the Unites States have in common is what we call ‘enterprise risk,'” Jacobson said. “They decided to fiscally get involved in something that put them in competition with the private sector.” He cited real-estate development as a common temptation on this front. For Cicero, it was an ice rink.

“But what we’re seeing with Stockton and San Bernardino is that it’s not enterprise risk. Rather, there’s some economic reason.” Such economic reasons would include the now familiar housing market meltdown or spike in unemployment. But there’s often something else going on.

“There are other Inland Empire and Central Valley cities in California that have had the same economic problems as Stockton and San Bernardino, but they’re dealing with nowhere near the same issues.”

In both Stockton, San Bernardino, and potentially now Compton, the thing that pushes cities over the edge into bankruptcy and that might compromise their willingness to pay their debts is a combination of political and economic shocks. In San Bernardino’s case,as I’ve reported, the firefighters union refused to negotiate with the city on reduced wages and benefits. There have also been allegations of fraud in the budgeting process. Stockton confessed to accounting irregularities in its 2010 budget, which added to its deficit for 2011 and 2012, according to Moody’s.

Jacobson said that this recent uptick in the unwillingness of a very small number of cities to pay debts isn’t really significant enough to be called a trend. But it might indicate a marginally changing view of how debts are handled by financially troubled municipalities. In California, that financial trouble needs to by immense, involving major macroeconomic factors, such as the housing bubble bursting, and long-term issues, including the fiscal demands that older charter cities are dealing with. Throw in ever-rising pension and benefit obligations for city workers and you can see how California’s recent experience, while important, may be distorting what actually happening in the municipal bond world.

Bad Day at City Halls: Scandals, Bankruptcies, and Crimes | Where We Are | SoCal Focus | KCET

My former boss (still a city manager after more than 40 years) likes to point out, when told of some new villainy by a public official, “We’re all going to hell in a handbasket.” It certainly looks like it, as this roundup of public catastrophes makes depressingly clear:

Cudahy. The Cudahy city council has been winnowed by resignations to just three members after current and former city officials were swept up in an FBI investigation of corruption in the operation of marijuana dispensaries. The Cudahy officials were caught in the same sting that recently forced the resignation of a Santa Fe Springs councilman.

Compton. Compton won’t be able to make its payroll after September 1, and city officials are actively considering bankruptcy to escape $43 million in bond debt. (Compton isn’t alone. El Monte and Monrovia have warned rating agencies that they will have problems meeting bond payments.) The city treasurer told council members this week that Compton has only $3 million in the bank and $5 million in unpaid bills.

San Fernando. Little San Fernando isn’t going bankrupt (is it?). Romantic entanglements, not city finances, have busted the city council. So far, one councilman has resigned rather than face recall over his affair with a councilwoman.

Santa Ana. Something worse is bothering Santa Ana, where a councilman was arrested two weeks ago on sexual assault charges. (He now wants the charges dismissed, claiming that the county prosecutor’s pre-trial statements have prejudiced potential jurors.)

Stanton. According to the Orange County Register, Stanton has become “a shell of of a city,” hollowed out by falling property values, the loss of redevelopment funds, poor sales tax returns, and a utility users tax that had failed to raise the expected revenue. Like many small cities in Southern California, most of Stanton’s budget pays for public safety programs. But cutting Stanton’s law enforcement contract with the Orange County Sheriff’s Department is unlikely. Without those cuts, however, Stanton may be the next California city to file for bankruptcy.

Vernon. Political corruption runs deep in Vernon, and now there are new reports of election irregularities, worsening finances, and even more chaos in city management.

Westminster. Westminster told its city manager to retire or be fired, although the reason for the city council’s ultimatum is unclear. Like Stanton, Westminster has been battered by the Great Recession. The city manager recently laid off 67 city employees, cut some services, and reduced future spending by nearly $7 million.

Every unhappy city is unhappy in its own way, but there are a few general reasons why these cities seem to be trundling off to perdition:

First, no one was looking while dumb or corrupt city council members and senior managers made decisions that turned out to be toxic to their community. The public was indifferent. The news media were largely absent. In places like Vernon and Cudahy, criminal conspiracies settled in.

Second, decades of low (and still declining) voter participation allowed untested candidates to be elected by little more than their personal constituencies. A couple of thousand votes are enough to get elected, even in the mid-size cities of Los Angeles and Orange counties.

Third, 30 years of haywire state and local government financing came undone during the Great Recession. As municipal revenues declined, cities with “rainy day” reserves spent them to keep public services at the level their residents expected. To stay ahead of its mounting debt, the state confiscated locally collected taxes and fostered befuddling schemes to expand the Legislature’s grasp of local revenues. Governor Brown’s execution of redevelopment — which cities used to escape Proposition 13’s revenue limitations — completed the downfall.

It’s a full handbasket we’re in and getting more crowded. Hell here we come.

via Bad Day at City Halls: Scandals, Bankruptcies, and Crimes | Where We Are | SoCal Focus | KCET.