California just as broke as bankrupt cities
By Dan Walters
So far this summer, three California cities have moved toward bankruptcy and several others are distressed enough that the b-word has left the lips of their elected and appointed officials ― including those in the two largest, Los Angeles and San Diego.
With the exception of tiny Mammoth Lakes, which sought bankruptcy protection after losing a lawsuit, the conditions of California's financially distressed cities are remarkably similar.
Elected leaders and appointed managers succumbed to hubris and political pressure, particularly from their employee unions. They committed their cities to spending on employee salaries and fringe benefits, especially pensions and health care, and civic improvements that could not be sustained when the housing bubble burst and revenue declined.
As their gaps between income and outgo widened, officials covered them with questionable transfers, bookkeeping gimmicks, loans and lies ― hoping against hope that the downturn would be brief and revenue would once again surge and bail them out.
"For the last 16 years, the budget prepared for the council showed the city was in the black. The mayor and the council were not given accurate information," San Bernardino City Attorney James Penman told his council members the other night before they voted to join Mammoth Lakes and Stockton in bankruptcy court.
San Bernardino thus becomes the second-largest city in American history to pursue bankruptcy ― second only to Stockton.
Officials in Stockton, San Bernardino and other upside-down California cities should bear the onus of their irresponsible decision-making. Their first responsibility was to protect the financial integrity of their cities but they allowed other considerations, mostly political, to get the best of them.
That said, what's happened at the municipal level is no worse than what's happened to state government for similar reasons.
For years, governors and legislators have squandered brief revenue windfalls on permanent spending and tax cuts, passed budgets based on whimsy, ignored liabilities (especially pensions and retiree health care), and covered resulting deficits with ever-more-elaborate accounting tricks and borrowing.
Democrat Jerry Brown ran for governor on a promise to straighten out the state's tangled finances ― just as Republican predecessor Arnold Schwarzenegger had pledged.
But Brown has signed two budgets based on fingers-crossed revenue assumptions and gimmicks. The first one failed totally and the second hinges on voter approval of new taxes that have no better than a 50-50 chance of being passed.
There's no provision in federal bankruptcy law for states, nor should there be.
But make no mistake: At this moment, California is every bit as insolvent as the cities that are trooping to bankruptcy court.
Dan Walters is an editorial writer for Sacramento Bee.