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|Subject: San Bernardino: How it went bankrupt||Date: 11/13/2012 8:21 PM|
|Author: yodaorange||Number: 408413 of 504902|
Reuters just published a very lengthy article about the history and causes of San Bernardino’s bankruptcy this year.  Reuters lays most of the blame on the police and fire unions. According the Reuters, the unions were able to “capture” the city council and get lucrative salary and pension benefits in their contracts.
A few excerpts from the story:
Yet on close examination, the city's decades-long journey from prosperous, middle-class community to bankrupt, crime-ridden, foreclosure-blighted basket case is straightforward — and alarmingly similar to the path traveled by many municipalities around America's largest state. San Bernardino succumbed to a vicious circle of self-interests among city workers, local politicians and state pension overseers.
Little by little, over many years, the salaries and retirement benefits of San Bernardino's city workers — and especially its police and firemen — grew richer and richer, even as the city lost its major employers and gradually got poorer and poorer.
Unions poured money into city council elections, and the city council poured money into union pay and pensions. The California Public Employees' Retirement System (Calpers), which manages pension plans for San Bernardino and many other cities, encouraged ever-sweeter benefits. Investment bankers sold clever bond deals to pay for them. Meanwhile, state law made it impossible to raise local property taxes and difficult to boost any other kind.
No single deal or decision involving benefits and wages over the years killed the city. But cumulatively, they built a pension-fueled financial time-bomb that finally exploded.
In bankrupt San Bernardino, a third of the city's 210,000 people live below the poverty line, making it the poorest city of its size in California. But a police lieutenant can retire in his 50s and take home $230,000 in one-time payouts on his last day, before settling in with a guaranteed $128,000-a-year pension. Forty-six retired city employees receive over $100,000 a year in pensions.
Almost 75 percent of the city's general fund is now spent solely on the police and fire departments, according to a Reuters analysis of city bankruptcy documents - most of that on wages and pension costs.
San Bernardino's biggest creditor, by far, is Calpers, the public-employee pension fund. The city says it owes Calpers $143 million; using a different calculation, Calpers says the city would have to pay $320 million if it left the plan immediately.
Second on the city's list of creditors are holders of $46 million worth of pension bonds - money borrowed in 2005 to pay off Calpers. The total pension-related debts are more than double the $92 million owed to the city's next 18 largest creditors combined.
. . .
Yet on this day in 2007, the city was about to raise pension benefits again, in a deal allowing non-public-safety workers to retire at age 55 with a pension equal to three-quarters of their salary. Called "2.5 at 55," it calculated annual pensions at 2.5 percentage points of final salary for each year worked - 75 percent for 30 years.
It wasn't nearly as good a deal as the one police and firefighters enjoyed - a "3 percent at 50" plan passed a year earlier. That enabled the public-safety workers to retire at 50 with a pension of up to 90% of their final salary. Regardless, "2.5 at 55" was what union negotiators had asked for, and the council was poised to rubber-stamp it.
That afternoon, in public session, the council unanimously voted to award its non-safety workers 2.7% at 55 - more even than the union sought. That tiny fraction could raise the pension on a $100,000 salary by $6,000 per year. Penman, in office since 1987, earned $164,799 last year, according to city payroll data.
Meanwhile, San Bernardino continued to boost wages along with benefits. The average salary for a full-time San Bernardino firefighter in 1997 was $75,610, adjusted for inflation into 2010 dollars. By 2010, it was nearly $147,000, according to a Reuters analysis of Census Bureau data.
City wages were a runaway train, according to the Management Partners report. The city charter automatically calculated police and firefighter pay using a formula linked to wages offered by comparably sized cities - most of which were much wealthier than San Bernardino. Efforts to amend the charter were strongly opposed by the safety unions and voted down by the council earlier this year.
City workers took advantage of compensation rules, common among public employees in California, that made retirement deals even better. Key to this was boosting an employee's eve-of-retirement wages, which form the basis of the pension calculations.
Mike Conrad, chief of the fire department from 2006 to 2012, said he saw managers negotiate a promotion in their final year, to boost their final salary. It was not uncommon for someone to move into a position with a $30,000 annual pay rise shortly before retirement, he said.
Retiring employees are also able to extract big one-time "cash outs." In San Bernardino, eight hours per month of unused sick time can be rolled over and saved year after year, without limit. Come retirement, 50 percent of the total can be taken in cash. The same goes for unused vacation time: up to 460 accrued hours of vacation - nearly three months of salary - can be cashed in at the fire departme