- Jan 2008
- Vertiform City
Special Report: How a vicious circle of self-interest sank a California city | ReutersThe mayor blamed a dysfunctional city council and greedy police and fire unions. The unions blamed the mayor. 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. 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.
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. Investment bankers sold clever bond deals to pay for them. Meanwhile, state law made it impossible to raise local property taxes and difficult to boost any other kind.
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.
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."
James Penman, the longtime city attorney who critics say is closely aligned with the unions, alleged during a council meeting this summer that 13 of the past 16 city budgets had been falsified. He has refused to elaborate on that accusation since, but told Reuters that he hasn't retracted it, either.
The Securities and Exchange Commission has opened an informal inquiry into the San Bernardino situation because of the city's bond obligations. The federal Department of Housing and Urban Development, which has provided funds to the city in the past, says it is conducting a routine periodic audit of the city's books that began before the bankruptcy.
No regulatory or law-enforcement agency has announced any criminal probe. Recently hired city finance officers do say they have found evidence of terrible accounting and record-keeping.
But unlike in the small Southern California cities of Bell, where eight city officials face trial on allegations that they stole from the public, and Vernon, where three officials have been convicted of corruption, San Bernardino's problems appear to be mainly the result of back-scratching on an epic scale.
"Evidence of terrible accounting and record-keeping".