Big fiscal woes ahead for small towns?
April 8, 2008
Like a swarm of small earthquakes that might ” just might ” turn out to be foreshocks of a Big One to come, the spate of near bankruptcies and other fiscal woes befalling small and medium-sized California cities this spring could be an early warning of far more serious trouble to come.
The city with the worst difficulties so far has been Vallejo, a medium-sized town on the San Pablo Bay about 30 miles northeast of San Francisco that has never been quite the same since the Mare Island Naval Shipyard ” opened in 1854 ” shut down in 1996.
Under pressure from union contracts whose terms it simply could not meet, Vallejo came within days of declaring bankruptcy in late February, bailed out only when police and firefighters’ unions agreed to trim a contracted pay raise from 10 percent to 2 percent. Firefighters also agreed to relax staffing requirements, allowing the city
to operate two fewer fire companies each day than previously.
But that might turn out to be only a stopgap measure, as Vallejo is like many other California cities, counties and school districts that will likely see revenue drop this year. State budget cuts already partially in force mean there will be less state money coming to localities in the next year. Falling property values will reduce property tax funds, while the overall near-recession means less sales tax money for everyone and stock market losses will mean fewer capital gains tax receipts.
Every restaurant meal foregone by cautious families, every home repair put off, every new car purchase delayed because of the slumping economy means less money coming into local government coffers just as surely as it means increased pressure on the far more publicized state budget.
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Besides Vallejo, warning signals this spring have already come from Orange County, where supervisors warn of a possibly serious shortfall at budget time two months from now. The West Contra Costa Unified School District covering Richmond, El Cerrito, Kensington and several other cities, warns it has enough money to cover payroll and bills through June, but might not meet all its obligations beyond then.
Contra Costa County warns that some local sales tax receipts are down as much as 50 percent so far this year, while property taxes have not risen. But retiree health care costs are skyrocketing, with about 4,000 county employees due to retire over the next 10 years.
In Fresno County, officials warn their generous retirement plan may soon need to borrow money, just four years after taking a $400 million bailout loan. One consequence is that current county employees will be paying about 14 percent more into the plan this year than before.
The city of San Diego is putting new limits on retiree pensions in its effort to avoid a brush with bankruptcy. Employees who have not yet retired will no longer be able to collect benefits exceeding their annual salaries and will have to work longer to reach the top benefit level.
The Fresno suburb of Clovis warns it will have a $3 million deficit heading into the 2008-2009 fiscal year. To avoid bankruptcy, that small city will try for an 8 percent across-the-board spending cutback, and will ask for some employee “give backs” and voluntary furloughs.
It all adds up to an entirely new scene for government workers in California and their unions.
The days when savvy labor contract negotiating meant figuring out ways to extract maximum dollars and benefits are gone. Things become more complex when unions have to worry about making sure they don’t take so much that they bankrupt their employers, thus forcing them to renege on many longstanding contracts and obligations.
It’s almost like Aesop’s old fable about the goose that laid golden eggs. The goose was in no danger of stopping until its owners got greedy and decided to check its innards to see if they could mine a large amount of gold all at once rather than settling for one egg per day. They cut it open, killed it and stopped the flow of gold altogether.
Similarly, public employee unions have not been satisfied with excellent jobs, good working conditions, solid pensions and health care plans, but continually press for more. Their greed is one big reason for the looming crisis threatening both state and local governments. Widespread bankruptcies would be the equivalent of the dead goose, as the big payouts public employees now get might quickly dwindle.
So it behooves them to give a little ground in this time of foreclosures and recession or near-recession, or the voting public might turn against them and install elected officials who won’t go along with the steady increases to which unions and workers are now accustomed.