Our cities have become vulnerable (November 29, 2015)

The bankruptcies of three cities and high-profile financial scandals in a couple of others demonstrated the operational vulnerabilities of California’s municipalities.

A coincidental series of events just this month underscore that vulnerability, to wit:

• The California Public Employees’ Retirement System board is shifting to lower assumed investment earnings.

It will force state and local governments to cough up more money on top of the hefty increases in contributions that CalPERS has already imposed to cover investment losses.

Cities are particularly at risk because they have, proportionately, the highest pension burdens, having bowed to pressure from powerful police and fire unions for high salaries and the highest pension benefits.

• Meanwhile, CalPERS is moving to slash pensions of officials in two scandal-ridden cities, Bell and Vernon. One has been collecting $550,000 a year in retirement.

• State Auditor Elaine Howle established a new program to identify local governments at high risk for the potential of waste, fraud, abuse or mismanagement …

Six cities made the initial list, with the most troubled being Richmond in Contra Costa County, the only one to flunk all five criteria of risk.

• Howle issued the list just a few days after the Richmond City Council gave its city manager, Bill Lindsay, a four-year contract extension with compensation totaling nearly $400,000 a year, more than twice what the governor is paid.

One credit rating organization has dropped Richmond’s debt to junk bond status and another to nearly that level.

Richmond’s problems stem from a fiscally inept city council majority that continues to pile on debt because it’s unwilling to acknowledge the city’s financial plight and make tough decisions, the Contra Costa Times editorialized.

• Richmond is not alone in piling on debt. State Treasurer John Chiang reported that $1.5 trillion in bonds have been issued by state and local governments over the past 30 years.

Prior to their abolition, city redevelopment agencies had issued many billions of dollars in bonds for sometimes dubious purposes without voter approval – much still to be repaid.

Chiang’s new debtwatch website will allow anyone to check local debt.

• Finally, the National Resource Network, which is affiliated with the White House Council on Strong Cities, identified 297 American cities deemed to be economically challenged and discovered that California has a disproportionately high number that suffer from high unemployment and poverty rates and low levels of educational attainment.

The 77 California cities in the report represent more than a quarter of the nationwide total, and they range in size from Los Angeles to Coachella.

The list includes all three California cities that went into bankruptcy. And not surprisingly, Richmond occupies a spot on the list – which makes that $400,000 compensation package for its city manager even more indefensible.

Source: Dan Walters, The Sacramento Bee