Zombified Cities – The Consequences of Extreme Labor Costs
Space does not permit a complete discussion of zombified cities. Such a list would be in the many hundreds. Rather this post is about four cities in recent news that are among the walking dead. One is even a dumping ground for the dead.
<strong>Fourth Financial Urgency in Miami in Four years</strong>
The <em>Huffington Post</em> reports <a href=”http://www.huffingtonpost.com/2012/07/27/miami-city-manager-state-of-urgency_n_1711537.html” target=”_blank”>Miami Declares Financial Urgency For Fourth Year In A Row</a>
<blockquote>Miami City Manager Johnny Martinez declared a state of financial urgency Friday for the fourth year in a row.
The move gives the city commission authority to restructure its existing contracts with police, general employee, and fire unions.
City commissioners agreed to not hike taxes in a budget meeting Thursday night, but instead will look to close a budget gap of tens of millions through union concessions. The $485 million budget must be balanced by September.
“The unions are not cooperating with the process,” Mayor Tomas Regalado told the Miami Herald. “We need to have a balanced budget.”
Martinez said in a statement that the city will be contacting union representatives to start up two weeks of negotiations. The declaration of urgency has likely incensed police and fire officials; according to Reuters, the latter group argued before city officials Thursday night that their pay has been cut 35 percent in the last 3 years already.</blockquote>
Click on link for a video.
<strong>Detroit Becomes Dumping Ground for the Dead</strong>
The Associated Press writes <a href=”http://hosted.ap.org/dynamic/stories/U/US_DUMPING_THE_DEAD?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2012-08-02-21-26-20″ target=”_blank”>Vacant Detroit Becomes Dumping Ground for the Dead</a>.
<blockquote>From the street, the two decomposing bodies were nearly invisible, concealed in an overgrown lot alongside worn-out car tires and a moldy sofa. The teenagers had been shot, stripped to their underwear and left on a deserted block.
They were just the latest victims of foul play whose remains went undiscovered for days after being hidden deep inside Detroit’s vast urban wilderness – a crumbling wasteland rarely visited by outsiders and infrequently patrolled by police.
Abandoned and neglected parts of the city are quickly becoming dumping grounds for the dead – at least a dozen bodies in 12 months’ time. And authorities acknowledge there’s little they can do.
The bodies have been purposely hidden or discarded in alleys, fields, vacant houses, abandoned garages and even a canal. Seven of the victims are believed to have been slain outside Detroit and then dumped within the city.
“Detroit is a dumping ground for a lot of stuff,” said Margaret Dewar, professor of urban and regional planning at the University of Michigan. “There is no one to watch. There is no capacity to enforce laws about dumping. There is a perception you can dump and no one will report it.”</blockquote>
<strong>How Pensions Crashed Stockton, San Bernardino</strong>
Bloomberg reports <a href=”http://www.bloomberg.com/news/2012-08-01/police-chief-s-204-000-pension-shows-how-cities-crashed.html” target=”_blank”>Police Chief’s $204,000 Pension Shows How Cities Crashed</a>
<blockquote>Stockton, California, Police Chief Tom Morris was supposed to bring stability to law enforcement when he was appointed to the job four years ago.
He lasted eight months and left the now-bankrupt city at age 52 with an annual pension that pays more than $204,000 — the third of four chiefs who stayed in the position for less than three years and retired with an average of 92 percent of their final salaries.
San Bernardino, a city of 209,000 about 60 miles (100 kilometers) east of Los Angeles, is typical of the phenomenon. Its city council voted July 18 to approve an emergency bankruptcy filing, about six years after the panel unanimously lowered the retirement age for public-safety workers to 50 from 55.
The council acted in August 2006 even though Aon Plc, the city’s risk-management consultant, had warned it that such a change would add millions of dollars to San Bernardino’s long- term pension costs. In the fiscal year that ended in June, pensions consumed 13 percent of the city’s general fund, up from 9 percent in fiscal 2007.
“I knew it was going to be costly in the long run,” San Bernardino City Councilwoman Wendy McCammack said of the lower retirement age. “However, this city is one of the toughest to police. In order to attract and retain the kind of officers that it takes to police a city like this, that was a benefit that we had to negotiate.”</blockquote>
Notice the complete ineptitude of San Bernardino City Councilwoman Wendy McCammack. She was willing to bankrupt San Bernardino by making untenable pension promises to “attract and retain” police officers. Did it work?
<strong>Pension Time Bomb Explodes in Oakland</strong>
The San Francisco Chronicle reports <a href=”http://www.sfgate.com/bayarea/article/Oakland-s-financial-time-bomb-pensions-3743946.php” target=”_blank”>Oakland’s financial time bomb: pensions</a>
<blockquote>It was 1976 when the city of Oakland realized it had a major problem on its hands: A pension created 25 years earlier to benefit police officers, firefighters and their widows was proving too costly to afford.
So the city closed the plan to new employees and later passed a parcel tax to pay for the pension. Yet today, that pension remains the source of one of Oakland’s biggest headaches.
It’s a generous plan that awards its retirees and widows – who now number 1,086 – raises to match up to two-thirds of the pay of the current-day workforce. But the city’s costs ballooned because it never adequately contributed to the pension fund, relied on borrowing for years to give itself holidays from pension payments and watched investments go south. The result of the borrowing is that the pension, known as the Police and Fire Retirement System, has cost Oakland taxpayers hundreds of millions of dollars more than it should have. In 2010, City Auditor Courtney Ruby found Oakland spent $250 million more on the pension than it would have if the city had simply paid into the pension – and that was just for one of its bond deals.
Last month, the majority of the Oakland City Council, at the urging of Mayor Jean Quan’s administration, voted to borrow money once again to cover the pension bill – $210 million in new pension bonds that will cost another $105 million in interest over the next 14 years. But the loan will allow the city to avoid paying for the pension from its general fund for four years. If the city hadn’t borrowed the money, it would have been forced to take $38.5 million from its roughly $400 million general fund to pay for the pension this year. Such a move would have required deep cuts to city services, which already have taken a hit due to the slumping economy, state budget cuts and redevelopment shutdown.
Wipe out parks, libraries
“If we had to pay this money this year and the next couple of years, the cuts would imperil our Police Department as well as completely wipe out our libraries and parks,” said Councilwoman Pat Kernighan. “In a few years, we’re going to be in a better position to make the payments.”</blockquote>
<strong>Complete Idiocy by Councilwoman Pat Kernighan</strong>
As stupid as the decision was by San Bernardino City Councilwoman (and it was incredibly stupid), the position of Oakland Councilwoman Pat Kernighan is much worse. Kernighan learned nothing from Stockton, San Bernardino, Miami, or Detroit.
Nor did Kernighan even learn anything from prior history in Oakland. Borrowing has already wrecked Oakland and this complete dunce wants to do more of it.
The only solution that has a chance is for Oakland to declare bankruptcy. Instead Kernighan voted to kick the can down the road one more time.
<strong>Oakland Headed for Bankruptcy </strong>
Oakland will not be in a better position in a few years. I confidently predict bankruptcy.
Bankruptcy is the only method cities can use to correct absurd pension promises made to police, fire, and teachers’ unions.
<strong>Advice to Unions </strong>
My beef is not with those lowest on the totem pole and their small $15,000 pensions.
Instead, I propose those with the largest pensions should take the bulk of the hit.
Police Chief Tom Morris lasted 8 months and will now receive a $204,000 annual pension. Morris deserves nothing, zero.
My advice to unions is to negotiate with cities in advance of bankruptcy or some judge will come along and do something like slash pensions across the board by 50% as happened in Rhode Island.
Across the board compromises give those like Morris far more than they deserve at the expense of hundreds of workers getting pensions barely enough to live on.
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<em>About the author: Mike “Mish” Shedlock is a registered investment advisor representative for </em><a href=”http://www.sitkapacific.com/”><em>Sitka Pacific Capital Management.</em></a><em> His top-rated global economics blog </em><a href=”http://globaleconomicanalysis.blogspot.com/”><em>Mish’s Global Economic Trend Analysis</em></a><em> offers insightful commentary every day of the week. He is also a contributing “professor” on </em><a href=”http://www.minyanville.com/” target=”_blank”><em>Minyanville</em></a><em>, a community site focused on economic and financial education. Every Thursday he does a podcast on </em><a href=”http://www.howestreet.com/audiovideo/” target=”_blank”><em>HoweStreet</em></a><em> and on an ad hoc basis he contributes to many other websites, including UnionWatch.</em>
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