This Reuters report on how the city of San Bernardino, Calif., drove itself off the fiscal cliff makes for bracing reading. Excerpt:
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.
Unions poured money into city council elections, and the city council poured money into union pay and pensions. The California Public Employees’ Retirement System (Calpers), which manages pension plans for San Bernardino and many other cities, encouraged ever-sweeter benefits. Investment bankers sold clever bond deals to pay for them. Meanwhile, state law made it impossible to raise local property taxes and difficult to boost any other kind.
No single deal or decision involving benefits and wages over the years killed the city. But cumulatively, they built a pension-fueled financial time-bomb that finally exploded.
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.
Remind you of anything? Here’s a statement from the final report of the bipartisan Simpson-Bowles Commission:
Over the long run, as the baby boomers retire and health care costs continue to grow, the [US budget] situation will become far worse. By 2025 revenue will be able to finance only interest payments, Medicare, Medicaid, and Social Security. Every other federal government activity – from national defense and homeland security to transportation and energy – will have to be paid for with borrowed money. Debt held by the public will outstrip the entire American economy, growing to as much as 185 percent of GDP by 2035. Interest on the debt could rise to nearly $1 trillion by 2020. These mandatory payments – which buy absolutely no goods or services – will squeeze out funding for all other priorities.



“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.”
Why the incredible growth in poverty in this town? Surely it’s not solely the fault of the pension fund game?
“According to four people present at the meeting, Penman, the city attorney, brought a pregnant co-worker to the session. By their account, Penman’s co-worker made an emotional case for an even more generous pension deal. Otherwise, she said, she would be forced to leave San Bernardino and seek work in a city with better benefits.”
This happens daily in many other communities, except it’s usually a corporate executive brought into a closed meeting threatening to move or close a plant unless a sweet deal can be made to keep them in the community. Here in the Midwest many towns are starting to feel the pinch after 20+ years of giving away the farm to keep businesses from moving elsewhere.
The unions in San Bernardino are doing exactly that larger businesses are doing across the nation. They are using their political connections to gain benefits for their members/stockholders. In both cases the taxpayers in the communities are left holding the very expensive bag.
The GOP has focused on the unions in the last few election cycles, and said little or nothing about corporate welfare. The Democrats have said much about the corporate side, but nothing about the unions’ influence. But honestly, neither side has a solid solution to the problem.