With some cities in bankruptcy and others on the verge, the status quo in California -- and around the country -- is no longer tenable
When the financial crisis strained state and local budgets, public employee compensation became the subject of national political controversy, most notably in Wisconsin. Conservatives tend to think government workers are overpaid, whereas liberals often defend their compensation as a model for what the working class is due. If I lived somewhere other than California, I might think that the impact public employee pensions are having on cities here was made up by the right as a sort of reductio ad absurdum scenario -- heed our warnings or you could wind up like this!
But the fact is that many California cities are either deep in debt, in bankruptcy or on the verge of crisis due to the pension obligations they owe present and retired workers, especially police and firemen. In fact, the impact of pension liabilities here is so great that it's changing the nature of the political debate: there is no longer a credible argument that maintaining the status quo is tenable.
The cautionary tale many observers cite is Vallejo, Calif. As Michael Lewis put it in his recent dispatch, "Eighty percent of the city's budget -- and the lion's share of the claims that had thrown it into bankruptcy -- were wrapped up in the pay and benefits of public-safety workers." He added that "the city had 1,013 claimants with half a billion dollars in claims but only $6 million to dole out to them." Thus the sad, once unthinkable scene people encounter when they visit what's left of their municipal government headquarters: "The lobby of city hall is completely empty. There's a receptionist's desk but no receptionist. Instead, there's a sign: to foreclosure auctioneers and foreclosure bidders: please do not conduct business in the city hall lobby."
Back in January, when the New York Times investigated what bankruptcy meant for Vallejo in practice, it looked like a worst case scenario for conservatives and liberals alike: "The four unions representing city employees claimed that California law protected their contracts, but the bankruptcy court ultimately ruled that the city could cancel its collective bargaining agreements. That, in turn, forced the unions to agree to deals that they would not have accepted otherwise. The city has cut retiree health benefits from $1,500 to $300 a month and stopped making payouts on accrued leave time," the Times reported. "But pension plans for retirees and current city employees, including one that allows police officers to retire at 50 with as much as 90 percent of their pay, remain untouched. The city chose not to test whether messing with pensions would be allowed even in bankruptcy, and so remains on the hook for some $195 million in unfinanced pension liabilities. Meanwhile, much of the savings in the renegotiated union contracts come from severe work-force reductions: the police department is down to 90 sworn officers from 155 in 2003, and the fire department was slashed from 122 people and 8 firehouses to 70 people and 5 firehouses."
If there's anything good about what happened in Vallejo, it's that the situation there makes catastrophic economic forecasts about other cities believable, rather than mere abstractions that no one can quite bring themselves to believe or address. For example, take San Diego: "Dr. Joe Nation, a Public Policy Professor at Stanford University, said if nothing changes the city can still expect, on average, 95 percent of its payroll over the next 18 years will go toward pensions and retiree health-care costs."