By Ed Mendel | 07/17/12 6:00 AM PST
A sharp spike in pension costs is not the reason an alarmed San Bernardino city council voted last week to authorize filing for bankruptcy, fearing the city may not have enough money to make a full payment to employees next month.
The city’s pension payments climbed steadily from a little over $5 million in 2000 to about $23 million in 2008. But the payments have remained at roughly $23 million since then, and increases forecast in the next few years are gradual.
A 45-page budget analysis posted on the city website last week said “retirement costs” were 9 percent of the general fund in fiscal 2006-7, grew to 13 percent last year and are expected to be 15 percent in fiscal 2015-16.
Retirement costs in Stockton, which filed for bankruptcy on June 28, are about 17.5 percent of the general fund. Retirement costs in San Jose and San Diego, where voters approved major pension cuts last month, are 20 percent of the general fund.
“The reasons for our dilemma are multiple and long enduring,” San Bernardino Mayor Pat Morris, a Stanford law graduate and former judge, told reporters a day after the vote last week.
“They began long before the meltdown of our economy,” Morris said. “We have been living on the financial edge for a long, long time. But we were unmasked by the meltdown in 2007 when we lost $16 million in sales tax in one year, when we lost 60 percent of our land value and 9,000 homes went into foreclosure.”
The local economy took long-term hits from the closure of the Kaiser steel plant and Norton Air Force Base, news stories said, and the city is now a bedroom community with 15 percent unemployment and 43 percent on some form of public assistance.
To fast-food aficionados, the old Route 66 city is the birthplace of McDonald’s, before the purchase by Ray Kroc, and of the Taco Bell prototype, first called Taco Tia by Glen Bell, whose employees were inspired to found Del Taco and Der Wienerschnitzel.
An editorial in the San Bernardino Sun over the weekend called for an end to a political feud between Morris and city attorney Jim Penman, a two-time loser to Morris in races for mayor.
“More than political rivalry, it’s come to drive the agenda, a maelstrom that drags down everything around it, polarizing the city’s leadership and paralyzing the process,” wrote Frank Pine, the Sun executive editor.
The San Bernardino County Sentinel speculated in March that the election of councilman John Valdivia shifted the balance of power on the council from Morris to Penman.
Morris unsuccessfully tried to change the city attorney from an elected to an appointed position, said the Sentinel, and Penman had his office investigate Morris and others for alleged violations of the political reform act.
The Sentinel said one of the first council actions after the pivotal March election approved a previously blocked $939,000 supplemental appropriation to the city attorney’s office.
Penman said last week that 13 of the last 16 city budgets may have been falsified, but he declined to reveal what he reported to authorities. Sheriff Rod Hoops told reporters he thinks a criminal investigation of the city is unrelated to Penman’s allegations.
The 4-to-2 council vote last week (the mayor only votes to break a tie) authorized Penman to seek bankruptcy. Interim city manager Andrea Miller said the city may need a month to prepare a bankruptcy filing.
Penman told the city council that Miller and finance director Jason Simpson, both hired in April, and an outside expert (an apparent reference to Michael Busch of Urban Futures) have not been involved in the political battles.
“They have all told us the same thing,” said Penman. “The attorney’s office has been informed that the cash flow situation is so poor that we probably will not be able to make the Aug. 15 payroll to our employees.”
To get bankruptcy protection from creditors before then, the city apparently would use the “fiscal emergency” provision in a new state law, AB 506, regulating municipal bankruptcy filing.
A city council meeting is scheduled today. Stockton used the full period prescribed by the new law for mediation with creditors, 90 days, but was unable to get agreements on enough savings.
The 45-page budget analysis prepared by the new financial team may raise questions about whether the city budget gap is being exaggerated to bolster the case for an emergency bankruptcy filing.
A chart on page 14 shows general fund spending last fiscal year was about $140 million. In the new fiscal year, finance director Simpson said the general fund is expected to spend $166 million.
Much of the increase is said to be due to the expiration of cost-cutting contracts with all unions except firefighters that saved $10 million and repaying money taken from internal funds for workers’ compensation, general liability and retiree health.
Revenue is expected to be about $120.4 million, probably increasing with a $1.2 million federal firefighter grant in September. So the projected budget is roughly $45 million.
But why the internal funds must be repaid this year is not clear, nor is the amount of effort made to get unions to continue the $10 million in concessions or give the city other savings.
The report said the city has negotiated lower pensions for new hires: 2 percent of final pay for each year served at age 55 for non-safety workers and 3 percent at 55 for police and firefighters.
That’s still higher than lower new-hire pensions negotiated by many employers. For example, most current state workers get 2 at 55 and new state workers will get 2 at 60.
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