Santa Clara University

There is a stigma about declaring personal bankruptcy, but it does not compare with the reputation that comes to a city that goes bankrupt. Ask the mayor of San Bernardino, the latest California city to file for Chapter 9 bankruptcy protection. As of this week, the city of 211,000 found it had just $150,000 in the bank. According to the Los Angeles Times, “The city barely scraped together enough money to cover its June payroll.”

Uncertain economic times are impacting local government to a degree that we have not seen in the past. Vallejo, a Bay Area city, declared bankruptcy in May 2008; Stockton did the same last month. Cities large and small are vulnerable. Earlier this month Mammoth Lakes, a resort town of 7,392 filed bankruptcy papers, in part because they could not pay a $43 million court judgment.

While costs of providing city services and employee benefits have skyrocketed, the slow economy and decline in real estate values have contributed to the $45 million shortfall in San Bernardino.

An “exit route” would not be possible without recent state legislation that changed bankruptcy law. The move was prompted by the 1994 bankruptcy of Orange County, the largest county in the United States to go bankrupt.

The results of declaring bankruptcy  include drastic reductions in police and fire protection, layoffs, and severe cuts in basic services such as parks, libraries, and road repairs. While it is easy to blame the financial problems on the pension programs (many are unfunded or underfunded), there is no benefit at this point to place the blame on any one factor. In some cases, the loss of redevelopment funds and the inability to pay off bonds are determining factors. And because any tax increases must be passed by the voters (one provision of Proposition 13), cites are unable to keep revenues in line with expenditures.

Is this the tip of the bankruptcy iceberg? Michael Coleman, a fiscal advisor for the League of California Cities admits there may be more cities facing this option in the future, but predicts some will able to weather the storm. As for the others, Coleman says. “Some cities may not go into bankruptcy, but they may dissolve. They may cease to exist.”

Discussion questions:

• Should cities have the right to declare bankruptcy?
• The law dictates how creditors are to be treated. What ethical obligation do cities have to their employees in times of fiscal collapse?

As the Rolling Stones say, “You can’t always get what you want.”

That is certainly the theme in Sacramento and cities across California as the state budget passed both houses by the June 15 deadline. But nobody was happy with the document, and Governor Jerry Brown promptly signed a veto.

Arguing that there would be no gimmicks in eliminating the state deficit, Brown said the document “ continues big deficits for years to come and adds billions of dollars of new debt. It also contains legally questionable maneuvers, costly borrowing, and unrealistic savings. We can—and must—do better.”

The $26 billion deficit has created friction between the Democrats and Republicans, with Governor Brown trying to reason with both sides. In the end, he criticized Republicans for refusing an important part of his plan: to let the voters have a say in how the balance will be achieved.

Brown wanted voters to decide on extending personal income and sales tax increases, a provision the Republicans would concede only if proposals such as a spending cap were included, along with reforms in both pension and regulatory programs.

This is the first time in 25 years the California lawmakers have been able to meet their constitutional deadline, but it may have been rushed due to a proposition passed last November that said: no budget on time, no paycheck. The voters will undoubtedly be unhappy with one concession by the governor that allows legislators to continue to be paid. Previously, State Controller John Chiang said he would permanently withhold lawmakers' pay and per diem starting June 16 if they did not pass a balanced budget.

So for now the Golden State will have to rely on another song from the Rolling Stones that laments, “I can’t get no satisfaction.”

Photo by freedom to marryavailable under a Creative Commons Attribution-Non-Commercial License.

California teachers have declared a “State of Emergency,” marching on the state capitol to lobby for a tax extension to preserve school funding.

Although the rally drew some 1,000 teachers and their supporters, only sixty-five people were arrested when they refused to leave the Capitol rotunda after the building closed for the day.

College students and parents, also concerned about the proposed cuts to education, joined the teachers. Many expressed frustration that “corporate greed and politics” have made educators the “scapegoats” in the current wave of criticism of public employee salaries and benefits.

According to California Teachers Association president David A. Sanchez, “It’s not right that the rich and big businesses don’t pay their fair share of taxes.”

Protesting with signs like “Tax the rich” is not as effective as face-to-face meetings with legislators from both parties. It is easier to ignore a noisy crowd outside your building than it is to ignore a constituent in your office. Especially when just last week the country celebrated “National Teachers Appreciation Week.”

Fiscal triage is underway in cities and counties across the country. The economy remains sluggish, unemployment is high, and the cost of providing basic services continues to rise.

Does this sound familiar? It's the same song we've heard for at least five years, but now there seems to be more truth in the lyrics. The naysayers, pundits, candidates,  and officeholders have all tried to fix our budget shortfalls without actually making substantial changes. That is no longer the case.

In California, Governor Jerry Brown is not only trimming "extras" like government-issued cell phones, fleet vehicles. and a variety of agencies, he is taking a close look at redevelopment agencies. These agencies, established in cities and counties throughout the state are allowed to shift their property taxes from schools and other needs in order to dedicate the money to "blighted areas." Cities argue a redevelopment agency (RDA) stimulates job growth and improves property values, and the League of California Ciies is mounting oppostion to the proposal.

Each redevelopment comes with a staff, so John Chiang, state controller, is also looking at salares in the 18 RDAs he has targeted for review.

As painful as Brown's proposed cuts are (they include higher education, social services, and the like) they are necessary --unless voters support higher taxes.

When the nurse is ready to give a shot it is usually with the warning" "this is going to hurt." Californians should consider themselves forwarned.

California's Governor Jerry Brown has declared a "fiscal crisis" in the state, and has proposed  some tough cuts to address the deficit. But cities across the state are rallying to object to a plan to eliminate redevelopment agencies, long considered an economic development tool.

Regardless of what fix the governor and legislature enact, it will not address the long-term problems. In a poll taken by Western City magazine, published by the League of California Cities, respondents were asked "What would you like to see the legislature accomplish this year?"

Not surprisingly, 72 percent of the respondents said they were looking for a long-term vision for the state, one that would address structural problems "without deferring problem items to future years."

Street sweeping or homework centers? Skate park or senior center? Retirement incentives or layoffs?

As the streetsweeper came by my house this morning I was wondering how long it will be before this service is cut from the budget. Now it is a weekly service, but I know of some cities that don't sweep the streets anymore because there is not enough money.

California's new governor has been looking for all kinds of places to cut costs -- from fleet vehicles to cell phones. Cities are likewise examining each and every program, and trying to balance a mixture of vital services (police and fire) with very important programs (water treatment plant and upkeep of streets and sidewalks) with the kinds of things that make a community llivable -- good schools, clean parks, well-stocked libraries, and the like. (It could be argued that all of these are vital to a well-rounded community.)

If you were given a list of all the services your city povides, along with the cost of each and asked to balance those costs against the city's revenue, what would you choose? Would you cut services or increase taxes? Both? Share your thoughts by commenting on this post. It will be interesting to see how the citizens prioritize spending.

According to the dictionary, a "lame duck" is one that falls behind the rest of the flock, or is weak. Today we use the phrase to describe an elected official holding office during the months between the election and the swearing in of a successor.

But as termed-out Governor Arnold Schwarzenegger demonstrated this week, a transition period need not be wasted.

The governor is calling an emergency session of the incoming legislature -- the individuals who will be responsible for solving California's $25.4 billion shortfall.

The new legislators will take office December 6, giving Schwarzenegger a limited window of opportunity before Jerry Brown becomes governor.

By declaring a "fiscal emergency" and convening the special session, Schwarzenegger is proving that there is no reason to be a "lame duck," even if the press describes you as such.