More California communities in fiscal trouble

The Los Angeles Times suggests more California communities are going to have to go beyond contracting out services and consider more drastic financial moves:

Once rare, turning to bankruptcy has become a painful but enticing option for cities whose labor costs and municipal debt far outpace anemic tax revenues. The Bay Area city of Vallejo began the current trend in May 2008, filing for Chapter 9 bankruptcy protection because, city leaders said, salaries and benefits for its public safety workers were eating up too much of the general fund.

Last month, Stockton became the largest city in the state to seek bankruptcy protection after it was unable to come to agreement with its employee unions and creditors on a plan to close a $26-million gap in its general fund. On July 2, the tiny resort town of Mammoth Lakes filed bankruptcy papers in part because it was saddled with a $43-million court judgment it couldn’t pay.

San Bernardino couldn’t close a $45.8-million budget shortfall and would be unable make its payroll this summer. Days before Tuesday’s City Council vote, the city of 211,00 people had just $150,000 in the bank. The city barely scraped together enough money to cover its June payroll.

Rising pension costs are are a growing issue in many places but not the only concern in this situation. Both states and the federal government have less money to contribute for local services and budgets. Tax revenues, property and sales taxes, are at least not growing much if not down. Residents and employees make it difficult to reduce service levels. How many people will be willing to live in certain suburbs and cities if the service levels have to decrease?

It will be interesting to watch these communities that have declared bankruptcy. The current mayor of Vallejo, California suggests the move wasn’t necessarily good for the community:

The Bay Area city of 112,000 was forced to shut down two of its fire stations and today fixes just 10% of its crumbling roads. Its workforce, including police and firefighters, is about half its pre-bankruptcy size and those people left are “insanely” overworked.

Meanwhile, Vallejo spent $10 million on legal fees. It ended up with employee contracts that Osby thinks the city could have struck more cheaply if it had stayed out of bankruptcy court and turned to the bargaining table.

But perhaps bankruptcy is the only route that “successfully” convinces everyone that something needs to change…

More financial problems in Chicago suburbs: underfunded police and fire pensions

If the federal government is short on money and so is the state of Illinois, then financial problems were eventually going to trickle down to individual communities, even those who would usually be considered wealthy. The Chicago Tribune details how many suburban municipalities have fallen behind in funding police and fire pensions:

Of the 300-plus pension funds across the region, only about 20 are rated by the state as fully funded…

The flaws and excesses were long masked by a strong economy, when big investment returns pushed average funding levels to nearly 80 percent a decade ago — which many experts consider to be healthy. The latest figures from 2009 show suburban public-safety pension funds, on average, have just 52 percent of the assets needed to be fully funded.

Though the true cost will vary from place to place, the unpaid tab averages nearly $2,700 for every suburban household. A strong economy could boost investment returns and lessen the liability, but experts say the financial sins of the past are too great for pension systems to merely invest their way out of them.

As lawmakers consider reforms, town leaders and unions point fingers. Unions complain towns haven’t saved enough and lawmakers failed to force them. Suburban leaders complain lawmakers required them to offer lucrative benefits without the cash to pay for them. The one thing they agree on: The recession made the problems far worse…

The state doesn’t compile figures of how many towns have done that, with such findings usually buried in individual fund audits. The Tribune reviewed every audit the state would provide — 153 of them in metro Chicago — and found regulators cited a third of their taxing districts for not providing enough cash to their pension funds.

A couple of things stand out to me about this story:

1. One issue appears to be that of fragmented suburban government. Illinois, specifically the Chicago region, is well-known for its many taxing districts and municipalities. If each community, big or small, was to provide a pension fund, there were bound to be problems when some of these communities cannot meet their obligations.

2. Residents are not going to be happy about this. There are a couple of places they might direct their anger: toward local officials who didn’t properly fund these pensions or toward police or fire unions (a common issue in more conservative locations). Residents are also likely to be unhappy if fire and police personnel, people who many citizens feel keep their communities livable and safe, are let go.

3. How would local communities explain their actions regarding funding pensions? Can they or local officials be held responsible, outside of voting against them?