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Vallejo Headed for Another Bankruptcy?

On May 6, 2008, the Vallejo City Council voted 7-0 to file for Chapter 9 bankruptcy. At the time it was the largest city in California to do so.

In March of 2009 I noted Judge Rules Vallejo Can Void Union Contracts.

Vallejo foolishly refused to do so, and I predicted it would soon be back in bankruptcy over the same reason it went bankrupt in the first place: absurd union wages and even more absurd pension promises.

Sure enough, here we go again.

Vallejo Still Can’t Afford its Pricey Pensions 

CNN Money reports Once Bankrupt, Vallejo Still Can’t Afford its Pricey Pensions

 The California city of Vallejo emerged from bankruptcy just over two years ago, but it is still struggling to pay its bills.

The main culprit: Ballooning pension costs, which will hit more than $14 million this year, a nearly 40% increase from two years ago.

Amid threats of legal action from the state’s pension giant, CalPERS, Vallejo did little during its nearly three-year stint in bankruptcy to stem the growth in its pension bills.

As a result, Vallejo continues to dole out large sums of money for retirees. Except for new hires, Vallejo’s police and firefighters can retire at age 50 with as much as 90% of their salary — for life. Public safety workers who retired in the last five years have average annual pensions of more than $101,000.

And the pension costs are expected to continue to rise, with a projected increase of up to 42% over the next five years.

Moody’s recently warned that Vallejo’s pension obligations could force it to file for bankruptcy protection a second time. The credit rating agency said the city offers a cautionary tale for two other California cities teetering on the brink: San Bernardino and Stockton.

If we don’t resolve those costs, then we’re going to see services continue to suffer,” said city manager Dan Keen, who has led the city since 2012. “We’re going to have to cut somewhere.

A lot of cuts have already been made.

Vallejo’s roads are littered with potholes. Three of its nine fire stations remain closed. And its police force is down by almost 40% — though Keen says there are plans to hire more officers this year.

Crime has surged, with more than two dozen homicides last year, compared to only seven in 2006. Burglaries are also on the rise. Residents maintain neighborhood watch groups, but the crime is taking a toll.

“Some people in my neighborhood are voting with their feet and leaving Vallejo,” resident Russell Zellers wrote in a 2013 letter to City Hall. “If things continue along the present course, I may not be far behind them.”

I am not the only one who predicted another mess for Vallejo. Steve Greehut did the same. For details, see Vallejo’s post-bankruptcy plight gets little notice in California’s state capitol.

Only One Way to Resolve Costs 

There is one and only one way to resolve costs: pension haircuts. Since the state will not allow pension cuts any other way, countless California cities are doomed to bankruptcy.

Oakland, LA, San Diego and numerous other cities are completely zombified by pensions. Eventually all of them will be forced to declare bankruptcy unless a way is found to otherwise reduce pension costs.

The citizens of Vallejo and all the other walking dead cities should not have to suffer through round after round of tax hikes, so a privileged few can retire at age 50 with 90% of top salary pensions for life.

Sooner or later one of these cities is going to do the right thing: smash CalPERS arrogance straight down CalPERS’ throat via massive across the board pension cuts in bankruptcy.

A judge allowed Vallejo to do just that. Vallejo refused (most likely to protect the pension plans of corrupt city officials and friends of city officials).

Vallejo will get another chance soon enough to do what needs to be done.

About the Author:  Mike Shedlock is the editor of the top-rated global economics blog Mish’s Global Economic Trend Analysis, offering insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education.

Vallejo’s post-bankruptcy plight gets little notice in California’s state capitol

When Vallejo, California was facing bankruptcy, pension reformers warned officials there that unless the city takes the opportunity to trim back pensions for current employees that it would soon be back in the fiscal tank. One official there said the city didn’t want to take on the politically powerful California Public Employees’ Retirement System (CalPERS), but backers of the city’s work-out plan mainly depicted critics as anti-union gadflies. The city hit the fiscal wall in 2008, but by 2010 (before it had even emerged from bankruptcy), it was clear that the city would soon be facing problems again. As I wrote in the Wall Street Journal, “To permanently bring its spending in line with its tax base, however, at some point Vallejo will have to do something about its pensions.” The city ignored such warnings.

Vallejo — a historical but gritty blue-collar, union-dominated port town on the edge of the San Francisco Bay Area — is in trouble again and might have to face a second bankruptcy, according to recent news reports. City officials downplay the findings, but CNN reported that pension costs have increased by 40 percent over the last two years even though the city has slashed employment and public services. The pension gouging from the past decade was so severe that the city just can’t keep its head above water. California courts have successfully stopped efforts by non-bankrupt cities to roll back pensions for current employees, even on a forward-going basis, and those cities that have chosen bankruptcy have mostly avoided the fight with CalPERS.

With public employees spared pension cuts, there’s not much that Vallejo can do other than cut services. “A lot of cuts have already been made,” according to the article. “Vallejo’s roads are littered with potholes. Three of its nine fire stations remain closed. And its police force is down by almost 40% — though … there are plans to hire more officers this year. Crime has surged, with more than two dozen homicides last year, compared to only seven in 2006. Burglaries are also on the rise. Residents maintain neighborhood watch groups, but the crime is taking a toll.”

It’s a shame. Vallejo is a beautiful old city, but it is crumbling because of the greed of its public-employee unions. Moody’s argued that the Vallejo situation holds lessons for two other troubled California cities, Stockton and San Bernardino. The latter has tried to deal with its pensions, but doesn’t have the power to take on CalPERS. Stockton followed the same route as Vallejo and came up with a bankruptcy plan that doesn’t trim pensions. And the city is raising taxes. As I reported for U-T San Diego, the Stockton numbers don’t look encouraging:

“For instance, Stockton-based watchdog Dean Andal, a former Republican Assemblyman and Board of Equalization member, walked me through some disturbing line items about Stockton’s plan to emerge from bankruptcy. … (T)he City Council recently approved a Plan of Adjustment to get back on sound footing. But based on an internal May forecast from the city’s mediation, Stockton could soon again be upside-down even after approving the plan. ‘By the fourth year, they return to insolvency,’ Andal said. ‘It has statewide consequences because other cities have the same structural issues. It’s not possible to become solvent again unless you break PERS (Public Employment Retirement System liabilities).’”

Stockton officials, like Vallejo officials, are sugar-coating the numbers. The Stockton city manager came up with his own rosy budget report, the details of which he wouldn’t even share with council members and the vice mayor. The Vallejo city manager told CNN that a new city tax is basically fixing their problems. Meanwhile, the courts continue to quash efforts by struggling cities to get control of their pension monster before they face insolvency and the state government is fighting San Diego’s fairly modest efforts to reform pensions. Attorney General Kamala Harris did her part to squelch a statewide pension-reform initiative by giving it an unfair title and summary sure to sour it in the minds of voters.

So the state’s political forces are allied against pension reform. Meanwhile, services get cut and taxes get raised. Those are the only two viable solutions. But even that’s not enough — as bankrupt cities ponder a second go at bankruptcy. We warned Vallejo, but it didn’t listen. So here goes again: Unless cities rein in the millionaire pensions granted to police and firefighters, public services (including police and fire, by the way) will suffer. Don’t count on anyone listening.

Steven Greenhut is the California columnist for U-T San Diego.

Pension Battle Shifts to San Jose, San Bernardino, Stockton

Now that a federal judge in Michigan has properly ruled pension obligations are not sacrosanct (see Lesson for Union Dinosaurs) the spotlight is once again on union dinosaurs in California.

Bankrupt San Bernardino foolishly did not attempt to shed pension obligations in bankruptcy, but perhaps it can now reconsider.

What about Stockton and Vallejo?

On April 1, 2013 Judge Rules Stockton CA Bankruptcy is Valid, City Acted in Good Faith. Hopefully Stockton will follow inevitable pension cuts in Detroit.

Second Chance for Vallejo

Vallejo had a golden opportunity to shed pension obligations in its first bankruptcy. When the city failed to do so, I made an easy prediction: Within years, Vallejo would be back in bankruptcy court.

That prediction appears well-founded. On October 20, 2013 I penned Vallejo, Mired in Pension Debt Again; Lesson for Stockton and Detroit – Shed Those Pension Obligations Now!

My comment from above: “Stockton and Detroit have a choice. They can cut pensions now, or cut them later in a second bankruptcy, just like Vallejo will.

Will Stockton get it right? Hopefully, but some things will depend on Detroit. We have not yet seen the final ruling, but steep haircuts on pension promises and unsecured general bonds should be forthcoming.

Battle in San Jose

The battle in San Jose, population 983,000 and California’s third-largest city, is of a similar nature.

San Jose spends 33% of its general fund revenue on pensions, the highest among the 25 most populous U.S. cities.

Mayor Chuck Reed wants to make changes to the pension plan. Specifically, Reed, a 65-year-old Democrat, is leading a statewide voter initiative to allow changes in future benefits for existing employees.

Union Dinosaurs Part II

Of course union dinosaurs are fighting the initiative, which means unions would rather see San Jose go bankrupt than negotiate.

Bloomberg reports San Jose Pension Crush Spurs Bid to Ease California Pacts.

San Jose, a city of 983,000 that is California’s third-largest, has been forced to make deep cuts in basic services as its retirement costs soared to $245 million in 2012 from $73 million in 2002. The city’s pension and retiree health-care liability is almost $3 billion, according to Reed, who was first elected in 2006.

San Jose voters last year approved retirement changes requiring new employees to pay 50 percent of the plan’s total cost, or about twice as much as current employees. Workers already on the city’s payroll could keep their existing plans by increasing their contributions or keep their costs steady by choosing a plan with more modest benefits.

Unions including the San Jose Police Officers’ Association and the San Jose Retired Employees Association sued to block the change. The case is pending.

Reed’s ballot initiative would amend the California constitution to give local governments the power to negotiate changes to existing employees’ future pension or retiree health care, while protecting benefits they’ve already earned.

“What they’re trying to do is overturn decades of case law, Supreme Court decisions and change the California constitution to allow public employers to either change, cut or eliminate public employees’ pensions in the middle of their career,” said Dave Low, executive director of the California School Employees Association and chairman of Californians for Retirement Security, a coalition of public employees and retirees.

“It’s a vested right,” Low said.

“In talking with other mayors around the state, everybody would benefit from having clear authority to be able to negotiate changes for future benefits for work yet to be performed for current employees,” Reed said of his ballot measure.

Mayors Pat Morris of bankrupt San Bernardino, Tom Tait of Anaheim and Bill Kampe of Pacific Grove are backing the plan. Santa Ana Mayor Miguel Pulido dropped out as a formal supporter and was replaced by Vallejo Vice Mayor Stephanie Gomes. Opponents include Oakland Mayor Jean Quan and San Francisco Board of Supervisors President David Chiu.

Also assailing the plan are the California Public Employees’ Retirement System, the largest U.S. public pension, and the California State Teachers’ Retirement System, the second-biggest U.S. public pension contending with a $70 billion unfunded liability.

The proposal “threatens the retirement security of existing and future educators, who have provided many years of service to California’s students,” Jack Ehnes, the teacher pension’s chief executive officer, said in a statement.

Reed said cities can continue to cut services and raise taxes, make employees pay more, cut benefit payments to retirees or cut benefits for current employees.

“None of those is fair, so it is better to talk about changing expectations of future accruals for future work,” Reed said.

CalPERS, Oakland Mayor Against Reed’s Plan

It’s not yet official, but Oakland is as bankrupt as bankrupt can be. Why its mayor would not want to back Reed’s initiative has three possibilities: reelection motives, sheer stupidity, or to preserve her own ill-gotten pension.

Rights of Dinosaurs vs. “Right Thing” 

Dave Low, executive director of the California School Employees Association and chairman of Californians for Retirement Security, a coalition of public employees and retirees, whines “It’s a vested right“.

Low can whine all he wants, but bankruptcy is a “right” as well. And rights in bankruptcy overrule alleged rights of unions.

Speaking of which, those alleged rights were primarily obtained via a process of coercion, threats, bribery, and back-room deals with crooked politicians willing to give unions what unions want so the politicians can get elected.

What’s “right” about that?

From a taxpayer perspective, the “right thing” to do is end collective bargaining of all public unions, after-which public unions, like dinosaurs, will become rightfully extinct.

About the Author:  Mike Shedlock is the editor of the top-rated global economics blog Mish’s Global Economic Trend Analysis, offering insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education.

Vallejo Faces 2nd Bankruptcy Because They Didn’t Restructure Pensions

Editor’s Note:  An article published today in the Stockton Record’s reports “Deis: City won’t tackle pension reform.” Bob Deis is Stockton’s city manager. Apparently he doesn’t want Stockton to be the first to fall. As soon as one city restructures their pensions, every city and county in California will follow, because the alternative is a state where literally 30% or more of every municipal agency’s general fund is turned over to the pension bankers. Something’s got to give, as the following report on Vallejo amply demonstrates. Vallejo’s city managers didn’t restructure their pension obligations two years ago when they had the chance in bankruptcy court. So now they’re back. Why? They can’t afford their pension payments. The pension funds – “Wall Street,” by any other name – provided overly optimistic projections, the unions believed them, and the politicians did what the unions told them to do. Public sector pensions are the last, biggest bubble left from the debt overload that nearly took down the U.S. economy in 2008. Even public sector unions can’t alter this reality. Deis can take his orders from public sector union bosses, or he can choose to fight the axis of unionized government and taxpayer-funded pension bankers who wish to exempt themselves from the economic challenges facing everyone else.

When Vallejo entered bankruptcy, it had a golden opportunity to shed pension obligations. When the city failed to do so, I made an easy prediction: Within years, Vallejo would be back in bankruptcy court.

And here we go again: Two years after bankruptcy, California city again mired in pension debt.

 Less than two years after exiting bankruptcy, the city of Vallejo, California, is again facing a budget crisis as soaring pension costs, which were left untouched in the bankruptcy reorganization, eat up an ever-growing share of tax revenues.

Vallejo’s plight, so soon after bankruptcy, is an object lesson for three U.S. cities going through that process today – Detroit, Stockton and San Bernardino, California – because it shows the importance of dealing with pension obligations as part of a financial restructuring, experts say.

The Vallejo experience may be particularly relevant to Stockton, which is further along in its bankruptcy case than Detroit and San Bernardino and has signaled its intention to leave pension payments intact.

“Any municipal bankruptcy that doesn’t restructure pension obligations is going to be a failure because pension obligations are the largest debt a city has,” said Karol Denniston, a municipal bankruptcy attorney in San Francisco.

“A city like Vallejo can be reasonably managed but it is still going to be flooded out because it cannot be expected to keep up with its pension obligations.”

Vallejo, a port city of 115,000 near San Francisco that was staggered by the closure of a local naval base and the housing market meltdown, filed for Chapter 9 bankruptcy protection in 2008 with an $18 million deficit.

During its three-and-half year bankruptcy, the city slashed costs, including police and firefighter numbers, retiree health benefits, payments to bondholders and other city services.

The only major expense the city did not touch was its payments to the $260 billion California Public Employees Retirement System.

“We realized we did not have the time or the money to take on a giant behemoth like Calpers,” said Stephanie Gomes, Vallejo’s vice mayor.

When it exited bankruptcy at the beginning of 2011, the payments to Calpers were just over $11 million, or 14 percent of the fund. The latest budget pegs those payments at $15 million, or 18 percent of the general fund.

The increase comes largely from the recent decision by Calpers to lower its projected investment return rate, from 7.75 percent to 7.5 percent, and to change the way it calculates long-term pension maturity dates.

Those changes mean cities, state agencies and counties must pay rate increases of up to 50 percent over the next decade. Vallejo expects an increase in pension contribution rates of 33 to 42 percent over the next five years.

Marc Levinson, of the law firm Orrick, Herrington & Sutcliffe, was the lead attorney for Vallejo in its bankruptcy and has the same role for Stockton. He says his clients would welcome pension reform in California, and he is the first to say that contributions to Calpers are a big problem for cities.

But, Levinson said, dealing with the issue is no simple matter.

“How does a city start a new pension plan when it can’t pay its bills?”, Levinson said. “How can a city break away from Calpers and still retain employees when other jurisdictions have a pension plan?”

Incompetence or Something else?

Allegedly the city did not want to take on CalPERSs then. Instead, it is going to face another drawn out bankruptcy drama.

Was there really much of anything to take on? I doubt it. The city had free rein in bankruptcy court to do what needed to be done: slash pensions.

As for Levinson’s ridiculous question “How does a city start a new pension plan when it can’t pay its bills?” … The city cannot pay its bills precisely because of preposterous pension payments!

The simple solution would be to make sure the plan is fundable at a reasonable discount rate. The yield on 30-year US treasuries seems about right.

Yes, that would be quite a haircut, but so be it. I also propose that the higher the current mandated pension payout, the bigger the cut. That way, some lowly clerk with a small pension would be more protected than city officials, police, and fire workers with high pensions.

Retaining employees would be easy enough. I suggest the city seek a bankruptcy court agreement such that any city employees who quit now would forfeit their pensions (or whatever portion is necessary to make the system solvent).

Ongoing, Vallejo should kill their defined benefit pension plan completely. With millions of people unemployed, I assure Vallejo would be loaded with qualified applications for whatever hires it needed to make (if indeed any).

In retrospect, the vice mayor’s statement “we did not have the time or the money to take on a giant behemoth like Calpers” sounds like a bald-faced lie. I suggest the real reason Vallejo did not go after pensions is the city bureaucrats would have cut their own pensions, and they did not want to!

Regardless, Stockton and Detroit have a choice. They can cut pensions now, or cut them later in a second bankruptcy, just like Vallejo will.

About the Author:  Mike Shedlock is the editor of the top-rated global economics blog Mish’s Global Economic Trend Analysis, offering insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education. Every Thursday he does a podcast on HoweStreet and on an ad hoc basis he contributes to many other websites, including UnionWatch.

California’s Public Employment Relations Board Thwarts Pension Reform

When it comes to state government, most people think of the governor and the members of the Legislature, those who are elected by the voters and do their business under the Capitol dome.

However, there is an entire class of faceless, unelected appointees to the state’s hundreds of boards and commission who determine whether or not state residents receive good services and a decent return for billions of dollars of taxpayer money.

These boards and commissions are generally tasked with oversight of various aspects of state management. However, some of these obscure agencies have proven to be nothing more than fronts for special interests.

One of the most egregious of these is the powerful Public Employment Relations Board (PERB) which is comprised of officials who behave as if they were a separate branch of California government. The members of PERB are currently taking aggressive action that could have a major negative impact on taxpayers in San Diego, San Jose, and potentially other communities.

PERB describes itself as quasi-judicial administrative agency charged with administering the collective bargaining statutes covering employees of California’s public schools, colleges, and universities, employees of the State of California, employees of California local public agencies (cities, counties and special districts), trial court employees and supervisory employees of the Los Angeles County Metropolitan Transportation Authority.

PERB is now using its tremendous clout in an effort to overturn landmark pension reform initiatives overwhelmingly approved by voters in the cities of San Diego (67%) and San Jose (70%). Board lawyers have filed complaints against the two cities claiming that public officials failed to bargain in good faith on pension issues with unions representing city employees, prior to the passage of the initiatives.

Voters in San Diego and San Jose acted proactively to avoid the fate of Vallejo, Stockton and San Bernardino, cities that have gone financially toes up because past city council members, elected with the support of government employee unions, agreed to lavish pension benefits that were unsustainable. With the future of their own cities on the line, citizens used the initiative process to approve reforms that would put pensions on an actuarially sound footing.

While the reforms approved by each community are slightly different, neither takes anything away from what employees have already earned. For public employees, having to contribute a little more to their own pensions, or to work several extra years for pension eligibility, is not a bad trade off if it means both cities will avoid bankruptcy and will be in a position to meet their future obligations to these workers.

However, Jerry Brown, who talks a good game of pension reform, is nonetheless beholden to the government employee unions for his repeat trip to the Governor’s office. Therefore, it should come as no surprise that he has used his discretion to stack the PERB with union hacks.

So now the dirty work to overturn pension reform at the local level is being done by PERB, and the governor will raise his hands, palms outward, and say, “Who me?”

With the huge public support for reasonable reform, isn’t it time for the governor and PERB to get out of the way and allow these pension changes that are fair to both employees and taxpayers to proceed?

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

The Bankruptcy Tsunami

First Vallejo, then Stockton, then Mammoth Lakes and now San Bernardino.  As Orange County Supervisor John Moorlach told Bloomberg News, the bankruptcy dominoes are starting to fall. One California city after another — following a decade-long spree of ramping up public-employee pay and pension benefits, as well as redevelopment debt — are becoming insolvent.

Not that the state’s legislators have anything constructive to offer. California’s Democratic leaders are not only unwilling to rein in the costs of benefits for their patrons, the public-sector unions, but they have been erecting roadblocks to those localities that want to fix the problem on their own. Yet all the political blockades in the world cannot fix the basic problem of insolvency.

Stockton negotiated the new process created by a state law requiring a 60-day period of negotiations before filing for Chapter 9 bankruptcy. That period is over and the city – a hard-pressed port on the edge of the California Delta – has become the largest city in the country to pursue municipal bankruptcy. The cause was a pension system eating up 30 percent of the budget, an absurdly generous retiree medical program that provided lifetime benefits after working for the city for a short period, and excess bond debt for pension obligations and redevelopment projects.

Soon after, Mammoth Lakes decided to pursue bankruptcy. That city’s problem came after it lost a judgment in a development case. Although not tied to public-employee compensation, the situation was caused by city officials who prefer to play developer than tend to the nuts-and-bolts of city government – a long-term problem in that eastern Sierra vacation town. In 1996, Mammoth Lakes lost a court case after it declared its downtown area blighted because of excess urbanization, in a ruling the judge said exemplified the misuse of redevelopment power.

The latest city to declare bankruptcy is San Bernardino, which has declared an emergency situation that will allow it to evade the negotiation period mandated by state law. The city simply doesn’t have the cash to keep operating. As Bloomberg reported, “San Bernardino and its agencies have more than $220 million of debt, including $48.6 million of taxable pension-obligation bonds, according to financial statements.” Pension-obligation bonds are used by cities to pay ongoing pension expenses, yet San Bernardino’s problems show that a city cannot borrow its way out of debt.

Other big cities, including Los Angeles, are talking more openly about the bankruptcy option. Not long ago critics who mentioned the B-word were considered Chicken Littles.

The latest talking point is that these cities couldn’t control what happened to them – that they were victims of the foreclosure crisis that rocked the inland areas where housing construction boomed during the housing bubble.

Foreclosures

The Riverside Press-Enterprise reported: “The city of San Bernardino’s financial woes are a directly correlation to a torrent of foreclosures in the Inland area of Southern California, the national foreclosure tracking firm RealtyTrac said Thursday. ‘Property taxes plunged in San Bernardino because of an avalanche of foreclosure activity during the recent housing bust,’ said RealtyTrac vice president Daren Blomquist.”

There’s no doubt San Bernardino and Stockton — Ground Zero for the housing crisis — suffered from the problem described above. But what did those cities do with the rapid increase in property tax revenues during the price run-up? We know – they squandered it on increased compensation for government employees, on redevelopment projects and other questionable spending deals. They squandered the money when it came flowing in, now depict themselves as victims of circumstance when the funds dried up.

The real culprit, as I argue here in City Journal, is foolish decision making. Stockton, for instance, refused to take advantage of an exemption in prevailing wage laws – something that could have saved it money but would have angered the powerful unions.

The housing bubble hit the hardest in cities inland from the growth-controlled major metropolitan areas. When the prices went up in Los Angeles and San Francisco, developers moved inland, where it was easier to get the permits necessary to respond to the demands of the marketplace.

Coastal cities

But even coastal cities are struggling. Los Angeles is not a victim of the foreclosure crisis. Pension costs in San Jose — where the housing market has rebounded thanks to a healthy tech-based economy — rose 350 percent in 10 years and now consume 20 percent of the general-fund budget. That city passed pension reform on the November ballot to stop the fiscal bleeding.

Here Joe Mathews debunks San Bernardino’s allegations that the state is to blame for its fiscal problems: “Local elected officials who complain about a lack of state money have things backwards. The state of California is relatively spare in its spending, compared to national averages. California’s local officials are, by contrast, big spenders, at or near the national lead in compensation for local workers, especially law enforcement.”

There’s no doubt the problem is fiscally profligate local governments, who busted the bank on public-safety pay and benefit packages and now are looking to cast blame anywhere they can.

Bankruptcy is not a great option but at least it gives cities a chance to get their house in order and start fresh. Unfortunately, Vallejo and Stockton refused to tackled existing pension debt in their bankruptcy plans. Orange County emerged from bankruptcy in the 1990s in better shape than ever, but as Chris Reed explained for CalWatchdog, subsequent boards of supervisors then began spending like crazy on public-sector compensation.

Bankruptcy cannot stop future officials from wasting the taxpayer dollar. But when there’s no money, there’s nothing left to do. In Scranton, Pa., a judge issued an injunction to stop the mayor’s plan to begin paying all city employees minimum wage. But there’s no money left to pay any more than that, he said. The city will gladly pay more as soon as it has the cash to pay it.

Only when the money runs out will cities find the necessary solutions. That’s perhaps the saddest commentary on the situation in California cities these days.

Steve Greenhut is vice president of Journalism for the Franklin Center for Government and Public Integrity.