San Bernardino, California –
On the front door of the San Bernardino city hall is a sign that reads:
“Out of Order.” Broke city, broken door: There’s a certain pleasing
symmetry in the fact that the San Bernardino city council meets behind a
door that, like the city government itself, does not work and is in
need of replacement. On this particular evening in late July, the
council has met to make public what everybody already knows:
Intellectually bankrupt, morally bankrupt — the city is under criminal
investigation for sundry financial shenanigans — San Bernardino is above
all old-fashioned bankrupt bankrupt, a pitiful penniless pauper that
cannot even afford a cup of coffee: Seriously — the coffee guy wants
cash up front now and has stopped serving the municipal office building
until the city makes good on its latte liabilities. This is a
paddle-free scato-riparian fiscal expedition of the first order.
After a great
deal
of self-congratulatory speechification — during which one council
member used the phrase “the buck stops” no fewer than five times without
once getting it quite right, laid out a little Boston Consulting–style
two-by-two matrix to explain his analysis of the situation, repeatedly
reminded the citizens of how often he had “prayed for strength” during
his four long months in elected office, and generally made a po-faced
spectacle of himself — after all that, the feckless ladies and clueless
gentlemen of the San Bernardino city council voted to seek shelter under
Chapter 9 of the U.S.
bankruptcy code,
a law that deals specifically with municipal bankruptcies and grants
cities an extraordinary level of protection during financial
reorganizations. A phalanx of pant-suited she-bureaucrats and the
city attorney explained that in addition to
filing for bankruptcy,
the city needed to declare a fiscal emergency, because it did not have
enough money even to last through the 60-day waiting period
that would follow initiating the
bankruptcy.
The moment was not without levity: When one of the ladies of the city
council inquired as to which court would hear the case, the city
attorney explained that he was pretty sure the city’s filing under
federal
bankruptcy law
would be heard in federal bankruptcy court. When another council member
inquired as to why the city was filing under Chapter 9 instead of the
more famous Chapter 11, the city attorney gently explained that the
municipality was filing under the municipal-bankruptcy law because it is
a municipality, not a guy with hospital bills and a mortgage in
default.
San Bernardino spends about 75 percent of its general-fund budget
on salaries, benefits, and pensions, with the vast majority of those
expenses coming from one class of employee: public-safety workers,
meaning cops and firemen, who earn as much as $230,000 a year with
overtime. Their pensions, as will not surprise anybody who has been
paying attention to government finances in recent years, are
extraordinarily generous. In 2007, a consulting firm warned the city
that its budget was in trouble because its personnel costs were growing
considerably more quickly than revenue, and the city’s response was #. .
.# to offer even more generous pensions in the same year. The firemen
are fat and happy in the California sunshine, but the rest of San
Bernardino is not doing as well: “When times were good, my wife and I
didn’t go hog-wild and play the let’s-get-a-bigger-house game,” says
Mike Potter, who works for a local construction firm. “But now times
aren’t good. At my company, 50 percent of the employees have been laid
off, and I’ve taken a 15 percent pay cut. I was the head of engineering,
and now I’m also a part-time receptionist and janitor.” He is one of
the lucky ones — the local unemployment rate runs around 15 percent —
and he is blunt on the subject of what encumbers San Bernardino and
other bankruptcy-bound California cities: “The public-employee unions
are killing us. They are killing our cities, our states, and our
country.”
John Magness, the biggest real-estate developer in San Bernardino, is
bearish on the city’s near-term prospects. “No respectable developer
would risk its relationships by getting its clients to locate in a city
with this risk,” he says. He estimates that his company’s projects have
added $1 billion to the city’s tax base and about 5,000 jobs over the
past decade, but finds himself “reluctant to encourage customers to come
here in this uncertain environment.” He spoke in favor of the
bankruptcy filing and fiscal emergency, arguing that it would give the
city an opportunity to run a river of reform through the Augean stables
of its finances, renegotiating contracts and rewriting the city charter.
The local business leaders were nearly unanimous in endorsing the
measures.
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