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.