Privatize San Bernardino’s EMS services
The City Council of San Bernardino, California, has declared its intent to file for bankruptcy and has issued a fascinating document that outlines the steps it would take to regain fiscal solvency. It’s a very creative and orderly attempt to reshape the finances of the government.
Proposals include a tax on phone service, estimated to raise $6.7 million dollars a year; a comprehensive asset plan to set market-rate rents for some city-owned properties and below-market-rate leases for others to create incentives for development; an increase in fees for false alarms that police respond to; and the outsourcing of tree trimming, street sweeping, graffiti abatement, streetlight maintenance and trash collection.
Although these ideas could raise new revenues, they do not really address the most burdensome parts of San Bernardino’s budget.
San Bernardino Mayor Patrick J. Morris said on Southern California Public Radio yesterday that the city’s public employee wages were especially “lucrative.” Although city employees agreed in 2010 to a 10 percent wage reduction for two years, the firemen’s union had told him to “pound sand” and sued the city to restore the previous wage level. It’s clear from this episode that even though San Bernardino firefighters were paid an average salary of $146,359 in 2010, they are entirely unwilling to help the city escape its fiscal black hole.
Morris had mentioned in a press conference on Tuesday that he and the city council have considered merging the city police and fire departments with those of nearby communities or with the county’s. This could be a very smart approach, since about half the city’s general fund expenses are dedicated to fire and police services. The city paid its frontline police workers an average of $110,099 in 2010. If nearby communities, or the county sheriff, have lower staffing costs, this could be an important source of savings.
Although fire departments are thought of as primarily putting out fires, about 70 percent of their incident calls are related to emergency medical responses and rescues, according to a 2009 report from the National Fire Protection Association (page 8). According to salary data filed with the California State Controller’s Office, San Bernardino employed 42 firemen-paramedics at an average salary of $134,331 in 2010. A 2003 report from the Reason Foundation found that privatizing EMS services doesn’t necessarily mean that fire-paramedic employees would have no job after privatization (page 11):
MuniLand Snaps: July 13
I’m on the radio! Thanks to Pat Morrison of Southern California Public Radio KPCC for inviting me to a roundtable on how the San Bernardino bankruptcy is looking much worse than Stockton’s.
Good Links
Business Insider: 32 reasons why we need to end the war on drugs
WaPo: Medicaid expansion a tough sell to governors of both parties
Reuters: Most U.S. muni tobacco bonds will default – Moody’s
Pew States.org: Pennsylvania struggles to help its weakest cities
Bankruptcy and fudged accounting in San Bernardino
San Bernardino, California made headlines this week for two distressing reasons. First, its city council voted to move toward declaring Chapter 9 municipal bankruptcy. Next, the city’s attorney made the shocking revelation that San Bernardino’s books have been cooked for 13 of the past 16 years, meaning that the surpluses the city had reported were, in fact, deficits.
San Bernardino is the third California city to move toward bankruptcy in the last few weeks, but the issue of bad accounting elevates this bankruptcy to a whole new level. The California Legislature enacted a new law last fall, AB 506, that requires 90 days of mediation between the city and creditors prior to a new municipal bankruptcy filing. But it is hard to see how that will be possible in San Bernardino’s case, since there are no legitimate financial filings to negotiate from. Moreover, the city doesn’t have the ability to pay its bills for 90 days during mediation. We’ve entered the twilight zone of muni workouts here.
Putting aside the issue of the city’s inability to follow proper accounting standards, San Bernardino may have a political leader in its mayor who is willing to take on the public unions and get necessary concessions from police officers, firefighters and other city employees. In the video above, Mayor Pat Morris discusses how the city will need to renegotiate salary and pension deals with city workers. Generally, salaries account for 70 to 80 percent of a local government’s cost structures and matter much more than debt service. Cities in California have the right to break wage and pension contracts with workers in bankruptcy. The problem is that we haven’t seen any political leaders willing to stand up to the unions.
The lawyers for public unions seem to be working hard to spin these bankruptcy stories as municipal development run amok. But the story in San Bernardino, like Stockton, is a case of enormous salaries paid to police officers and firefighters. In addition to the high wages paid to these workers, San Bernardino swelled the ranks of its public safety workforce relative to the population between 2004 and 2008. This trend is in reversal now, and finding a balance between public safety and fiscal sustainability will be tough. San Bernardino has a lot of work ahead of it.
Further:
Interesting that none of the articles I have read state the “books were cooked” (ie, the financial statements were fraudulent). The alleged false documents were budgets.
MuniLand Snaps: July 12
Newport Beach, California, one of the nation’s richest communities, has one of the scariest police recruiting videos you can imagine. Many have warned about the militarization of community police, and this is a perfect illustration. In contrast the Decatur, Georgia recruiting video has a focus on empathy and working with members of the community. (Hattip OC Weekly)
Good Links
LAT: Rising costs push California cities to the fiscal brink
BreakingViews: Bankruptcy loses its taboo for California’s cities
Bond Buyer: San Bernardino Chapter 9 sets standoff with bondholders
Mastagni Law: A public union lawyer’s view on why cities scapegoat cops and firefighters
Did the police and fire departments sink Stockton?
How does a bankrupt city pay its public safety workers twice the median household income of the area’s residents? More important, why haven’t the city manager and council stopped this wage bonanza?
In Stockton, California, public safety workers earn on average 126 percent of the maximum salary and at least 200 percent of the minimum wage for their respective wage categories. The California State Controller’s Office has all the data, and it’s not pretty.
Stockton’s median household income was $50,011 in 2010. In contrast, the average total wage paid to a city police worker was $93,111. For employees of the fire department, it was $110,303. Admittedly, these are dangerous professions, but surely they are not so dangerous as to require pay of double the median household income of the entire community.
When you dig through the numbers, it is actually pretty depressing to see the amount of pay some city employees receive (the Controller’s data lists individuals’ take-home pay but not their names):
Stockton, in its bankruptcy filing, admits that the city has had little-to-no success in getting the pay of its public safety workers under control, and these expenses consume about 76 percent of the general fund. When the city manager faced a general fund shortfall in May 2010, he temporarily suspended scheduled pay increases, restricted time off and closed a fire truck company after negotiations with the unions went nowhere. The city saved $23 million from these changes. The bankruptcy filing says that 2011 saw additional, “severe” reductions in personnel costs.
Understanding exactly what is happening in Stockton’s government is difficult because it is behind in filing its required financial statements – the 2010 Comprehensive Annual Financial Report is the most current document other than the bankruptcy filing. But even a freshman who has taken an undergraduate accounting course could look at the city’s labor expense and determine that even if revenues were healthy, the city’s fiscal situation is unsustainable.
This article is proof that unions have been abusing the public coffers for decades. Most of these firemen and police officers do not even have 4-yr college degrees and yet they’re making over $132K…..?????? I know engineers with Masters degrees who slaved away at tough engineering schools for 6 years who don’t make anywhere near that kind of money. How has our system of reward gotten so out of wack where a fireman with a High School degree can make that kind of money? Answer: unions browbeat spineless city administrators who, rather than be good stewards of the public coffers, instead “cave” to union thug tactics and sell-out the taxpayer. And this has been going on for decades and now it’s all falling apart because we have reached that point that Margaret Thatcher (former PM of England) spoke about when she said that Socialism ends when you run out of other peoples money to spend……
MuniLand Snaps: July 11
The Tax Foundation put together this chart on changes in property tax rates.
Good Links
Bond Buyer: Obama’s tax extension proposal for high earners would boost muni demand
CSM: Got student debt? Move fast, and some cities will help you pay it off
Comptroller of California: The state ended the fiscal year with a cash deficit of $9.6 billion
AP: San Bernardino votes to declare bankruptcy
What Goldman’s muniland charm offensive doesn’t tell you
When I did a Google search earlier yesterday for “Louisville Arena Authority bonds,” which were recently downgraded to junk by Moody’s, I saw this paid ad from Goldman Sachs alongside the results:
It’s part of a series of ads touting the investment bank’s underwriting of the $349 million bond deal from 2008 that financed the construction of a new basketball arena at the University of Louisville. The ad says:
When Louisville wanted to build a state-of-the-art arena for their men’s and women’s college basketball teams, the city knew it would have a big impact on the local community. See why basketball fans weren’t the only ones cheering when Louisville built a new arena downtown.
Goldman Sachs & their likes should be shut down and all of their executive mobsters should be prosecuted ruthlessly.
They have committed horrendous frauds to local communities & investors world-wide,and they have collaborated with so many corrupt sovereign governments (especially in the EU).
They are engaged in nothing less than a financial carnage and
I would be the first to throw on the switch to their executive electric chairs.
MuniLand Snaps: July 10
The Kaiser Family Foundation provides a useful map of spending by state on Medicaid, and Reform+Medicaid spells out the reasons that some states are rejecting Obama’s Medicaid expansion.
Good Links
Jones Day: Constitutional limitations on the seizure of underwater mortgages
National Center for Education Statistics: 13.2 percent of public-school students are in disability programs
Governing: Public pensions and the value of honest numbers
Reuters: Texas joins Wisconsin, Louisiana and Florida in rejecting healthcare expansion
MuniLand Snaps: July 9
A well-to-do city outside Atlanta incorporated and privatized most of the municipal services it provides. More from conservative think tank Reason.
Good Links
NYT: Doughnuts defeating poverty
WaPo: What happens if a state opts out of Medicaid, in one chart
NPR: At work and at play, how cities stack up
Tableau: How California gets its revenue
Why Stockton is broke
Stockton Vice-Mayor Kathy Miller talks about the exorbitant salaries paid to city workers and why the city is filing bankruptcy.
The media has described the problems of Stockton, California as being caused by the housing crisis and economic recession. A non-profit, California Common Sense, points to another reason for the city’s bankruptcy: its extraordinarily generous employee compensation agreements (emphasis mine):
[Stockton] employee salaries are scheduled to automatically increase 2.5-7%, depending on General Fund revenue growth. Consequently, employee salaries increase 2.5% even if the General Fund shrinks compared to the previous year.
Other unions such as the police, requires a periodic market survey to ensure the city does not pay less than comparable cities. A provision in the MOU further states that if any other union group in Stockton receives a higher wage increase than outlined in the formula, then all employees affected by the General Fund budget must receive the same increase as well.
In an economic slowdown, when sales and property tax collections are cratering, this is a recipe for unbalanced budgets. The number of employees must be cut to maintain overall expenses and reduced when revenues shrink. California Common Sense then moved on to the even bigger issue of healthcare costs for employees:
Although salaries make up the bulk of employee services expenditures, expenditures on benefits, especially health costs, are rapidly rising.
Medical costs have grown at an average rate of 9.7% over the past decade and unless the city makes a concerted effort to address this, health costs for current employees alone could consume more than 20% of the budget by 2015.
CCS says salaries and benefits must be addressed to get Stockton on solid footing. The report details the changes that Vallejo, California made in its bankruptcy and that Stockton could anticipate in its Chapter 9 case:
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