Posted on 01 December 2012.
San Bernardino City Attorney Makes Stunning Announcement
–Details of City’s Bankruptcy: Runaway Pensions–
San Bernardino City Attorney Jim Penman is under scrutiny for telling residents to “lock their doors and load their guns” during Wednesday’s city council meeting. The official explained the city is bankrupt and with the slashing of public safety budgets, people need to start protecting themselves. Afterwards, he said he doesn’t regret what he said.
To note, San Bernardino had 45 murders this year– a 50% rise from last year.
So what happened?
Excerpts from Reuters: The Fall of San Bernardino: How a Vicious Cycle of Self-Interest Sank a California City
When this sun-drenched exurb east of Los Angeles filed for bankruptcy protection in August, the city attorney suggested fraudulent accounting was the root of the problem.
The 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 regional economist. “There’s 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.
Runaway Pensions at Heart of Fiscal Woes
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.
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. Penman, in office since 1987, earned $164,799 last year, according to city payroll data.
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 an audit of the city’s books. 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.
By the time San Bernardino’s council met behind closed doors on September 17, 2007, it was already clear the city was in trouble. Yet on this day in 2007, the city raised pension benefits again, in a deal allowing non-public-safety workers to retire at age 55 with a pension equal to three-quarters of their salary. Called “2.7 at 55,” it calculated annual pensions at 2.7 percentage points of final salary for each year worked – 81 percent for 30 years.
It wasn’t nearly as good a deal as police and firefighters enjoyed – a “3 percent at 50″ plan passed a year earlier. That enabled the public-safety workers to retire at 50 with a pension of up to 90% of their final salary.
Meanwhile, San Bernardino continued to boost wages along with benefits. The average salary for a full-time San Bernardino firefighter in 1997 was $75,610, adjusted for inflation into 2010 dollars. By 2010, it was nearly $147,000, according to a Reuters analysis of Census Bureau data.
City workers took advantage of compensation rules, common among public employees in California, that made retirement deals even better. Key to this was boosting an employee’s eve-of-retirement wages, which form the basis of the pension calculations.
Mike Conrad, chief of the fire department from 2006 to 2012, said he saw managers negotiate a promotion in their final year, to boost their final salary. It was not uncommon for someone to move into a position with a $30,000 annual pay rise shortly before retirement, he said.
Retiring employees are also able to extract big one-time “cash outs.” In San Bernardino, eight hours per month of unused sick time can be rolled over and saved year after year, without limit. Come retirement, 50 percent of the total can be taken in cash. The same goes for unused vacation time: up to 460 accrued hours of vacation – nearly three months of salary – can be cashed in at the fire department, Conrad said.
The police have a similar deal. In 2009, patrol lieutenant Richard Taack retired at the age of 59, after 37 years of service. He took home $389,727 that year, including $194,820 in unused sick time and $33,721 for unused vacation time, according to city payroll records. Shortly after Taack retired – on an annual lifetime pension of $128,000 – he was hired part-time by Penman’s city attorney’s office, at $32 an hour.
City wages were a runaway train, according to the Management Partners report. The city charter automatically calculated police and firefighter pay using a formula linked to wages offered by comparably sized cities – most of which were much wealthier than San Bernardino. Efforts to amend the charter were strongly opposed by the safety unions and voted down by the council earlier this year.
Roads and Potholes
Taack’s 2009 income was nearly double that of the city’s entire street-sweeping department. In 2011, overtime pay alone for the police department – $2,766,175 – exceeded the total payroll of 12 other San Bernardino city departments, according to the Reuters analysis of payroll data. Taack didn’t respond to requests for comment.
“I can’t begrudge the man for receiving what he’s entitled to under the contract,” said David Green, the head road sweeper, who has seen his department cut to five people from 13 when he joined in 1995. But he said there should be a better balance between the safety forces and other departments. “Nobody wants to drive a car and have to hit a three-foot pothole.”
Indeed, potholes scar downtown San Bernardino. Many stores are shuttered. Abandoned lots sit unkempt. Since the bankruptcy filing, city finance officials have put forward proposals to close libraries, senior centers and a cemetery.
Andrea Travis-Miller, interim city manager, told the council this summer that 250 non-safety positions had been eliminated in the past three years to save money – and implied that police and fire benefits were crowding out other essential services. “I believe that city buildings, roads, trees and parks that have begun to show neglect would deteriorate further if more cuts are made,” Travis-Miller said.
Scott Moss, head of the firefighters union, said 20 positions had already been cut from the fire department, leaving about 120 people.
“There’s been mismanagement for years,” Moss said, over coffee in a local restaurant. “The mayor and his people are trying to make us look bad.”
Moss, 46, a fire paramedic, said he might retire at 53. Payroll records show a base pay of $94,500, and total 2011 wages, with overtime, of about $147,000. Moss confirmed the base figure but didn’t comment on the overtime number.
“This is a dangerous city. It’s an old, decayed city. It burns. There are gangs. The pay and benefits attract the police and firefighters it needs. Without them, you
lose all the good ones. That’s the balance,” Moss said.
San Bernardino and Stockton are hardly alone. A handful of other small California cities, including Atwater, Hercules and Compton, are teetering near bankruptcy.
Big California cities that run their own pension plans also have deep problems. San Jose, hub of Silicon Valley, and San Diego, biotech center of California, both passed pension reforms in June in the face of unmanageable retirement benefits. They are now defending those measures in court against public-employee lawsuits.
In Los Angeles, Mayor Antonio Villaraigosa, a former labor organizer, led a push to raise the retirement age and cut pensions for new, non-safety city staff. He exempted police and fire employees. A ballot measure sponsored by former Mayor Richard Riordan aims to include them in the cuts, too.
The chronic mismanagement in San Bernardino, though, is a common feature of local government in California and around the United States. Much power over municipal finance lies in the hands of those with the most at stake — city employees, elected officials and others who depend directly on government for their livelihood.
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You can read the full Reuters article here.
Let’s hope Humboldt County and the City of Eureka don’t follow suit in San Bernardino’s wake. A look at our administrative salaries– and the number of administrative positions in departments– are shocking. And the roads in Eureka are still a potholed mess with little improvement to show of.
We hope the incoming Eureka City Manager, paid $158,000 per year, can fix things. Of course, we’ll also be paying the outgoing City Manager his percentage retirement of nearly the same amount, too.
For now, however, Eureka’s Measure O shoring up safety budgets has kept the fiscal problems at bay and citizens from arming themselves for protection. For now.
(Posted by Skippy Massey)