The Unnecessary Bankruptcy in San Bernardino

From the welfare-state ambitions at the global and continental levels, let’s dive down to the less conspicuous but nevertheless very informative city level. As so many other cities in the United States, San Bernardino in Southern California is struggling to meet its spending obligations. According to the Los Angeles Times, the city is now giving up and filing for bankruptcy:

San Bernardino on Tuesday became the third California city in less than a month to seek bankruptcy protection, with officials saying the financial situation had become so dire that it could not cover payroll through the summer. The unexpected vote came at the suggestion of the interim city manager, who said the city faces a $46-million deficit and depleted coffers. “We have an immediate cash flow issue,” Andrea Miller told the mayor and seven-member City Council. Mayor Patrick Morris called the decision, passed on a 4-2 vote, a “stain” on the city. But he said the only other option was “draconian cuts” to all city services, including the police and fire departments.

To delve in to the city finances of San Bernardino, let’s start with a visit to californiacityfinance.com:

  • From 1991 to 2008 (the latest year reported) San Bernardino increased its total spending by 5.2 percent per year;
  • The cost of salaries to city employees increased by 4.7 percent per year, indicating that something else is the primary driver of the city’s budget problems;
  • Total cost of employees – salaries, retirement and other employee benefits – constituted 69 percent in 1991, 59 percent in 2000 and 65 percent in 2008.

Long story short: employee costs have increased roughly on par with other spending in the San Bernardino city budget. Therefore, it is fair to conclude that the city has created a number of spending programs that in themselves drive the need for city staff. This is a fact that is too often overlooked by city council members; regardless of where they are, they seem to be unable to prioritize essential government functions over non-essential functions. In many cases this leads to outright boneheaded budget choices. Two examples:

  • Back in 2010 the city council in Visa, Calif., decided to turn off street lights in an attempt to cut costs. Only problem was that the city kept pouring hundreds of thousands of dollars into the city’s amusement park – $2 million in the 2008-09 fiscal year alone;
  • Last year, Topeka, Kansas stopped prosecuting domestic violence cases because it wanted to continue spending more than three quarters of a million dollars on golfing activities.

Before we turn to the San Bernardino budget, let’s go back to the LA Times story, which reports that San Bernardino apparently did not see this coming:

The city’s fiscal crisis has been years in the making, compounded by the nation’s crushing recession and exacerbated by escalating pension costs, lucrative labor agreements, Sacramento’s raid on redevelopment funds and a city reserve that is tapped out, officials said. Miller told the council that the city faced major deficits for the next five years. The deficits remain even after the city negotiated $10 million in concessions from employees and slashed the workforce 20% over the last four years.

Apparently, the city council members have been asleep at the wheel and are now panicking. That would not be necessary if they took a fresh, priority-oriented look at their budget. If they did, they would find that the city has an expected budget shortfall of $25.3 million for 2011-2012. They would also find $34.7 million in spending that could easily be cut through competitive outsourcing or fully privatized:

  • Community Development, $5.6m
  • Libraries, $2.1m
  • Financial services, $2.5m (up $850,000 in one year alone!)
  • Park services, $5.1m
  • Fleet services, $7.6m
  • IT services, $4.4m
  • Regional Circulation Systems (essentially regional infrastructure planning), $6.7m

The city has thoughtfully stopped spending money on a baseball stadium but is instead doling out almost half-a-million dollars on soccer fields.

The fact that the city council chose bankruptcy over finding $25 million in these spending programs shows that they are unwilling to do the job of responsible grown-ups: to focus government on its essential functions. If they persist in making wise priorities, and continue to resort to panic spending cuts as the city restructures, they should leave their seats on the city council to others.