San Bernardino Bankruptcy: Austerity is Pushing us to the Brink

This week, San Bernardino became the third California city in seven months to seek Chapter 9 bankruptcy. When trying to close a $45.8 million  budget shortfall in June, the mayor and council discovered that it only had $150,000 on hand, barely enough to last past August 15. Even worse, city budget staff has been misreporting the city’s financial state for the past 16 years.

Across the country, in Michael Scott’s Scranton, PA, the mayor, faced with a similar predicament, cut checks to his employees to the amount of $7.25 an hour—the federal minimum wage. Why? Because state law dictates that Pennsylvania cities cannot declare bankruptcy, and the city council was unable to reach an agreement on revenue increases or spending cuts.

Full disclosure: I’m a Democrat. I believe it’s unhealthy for government to limit itself in raising and spending revenue. Government is society’s best way of tackling our greatest problems, and my tax dollars and my vote are ways in which I contribute to this effort.

But I’d be going against my own logic (and raising the ire of my libertarian friends) if I turned a blind eye to the fact that local governments are placing a high and irresponsible priority on public worker pensions and benefits. As bankrupt cities like Stockton, CA show (pension costs at the time of bankruptcy accounted for 68% of their general fund) as these costs escalate, they crowd out room on the budget for the people who need that money most—low-income millennials who get into a UC, but can’t afford it; the sick, the hungry, those with mental health conditions; the 24 million unemployed Americans who contributed greatly to society when they had a job in the good times.

What you spend your money on shows your values and priorities. In cities like Stockton, they imposed austerity for those who need government most—but had disproportionate "Cadillac" polices for their public sector workers, which, ultimately, led it to bankruptcy.

That last sentence deserves some context, though. Median public sector workers are paid less for comparable private sector work. Across the country state workers are being laid off at a faster rate than their private counterparts, have had their salaries frozen, don’t get bonuses, and are overworked when older coworkers retire and their department can’t hire due to budget constraints.

So what are the cost drivers of annual pension obligations? Culprits include the few, but fat, pension plans that high-ranking officials receive (such as fire and police chiefs), and the low (and sometimes nonexistent) amount employees pay into their retirement and benefits. Because pension systems make a lot of money pooling members’ cash in the stock market, they set a rate of return on their investments; in the last decade, that return has been set too high, meaning that cities must make up the difference.

Cities aren’t going bankrupt, then, because of a “spending” or “revenue” problem. It’s an allocation of resource problem. The many are getting an austerity budget to live and struggle on, and the few are getting disproportionately more. And it’s making us bankrupt.

Which means, on a deeper level, it’s our problem as voters. We vote the bastards in that make these labor negotiations, that set rate-of-returns on pension systems, and that manage finance staff that mislead us. We fool ourselves into siding with the spenders or the slashers, because it’s an easier worldview to digest.

We need to start seeing budgets as means by which we tackle our city community’s greatest problems and needs. Leaders need to be elected that are brave enough to cut Cadillac plans for the disproportionate few, but raise money in fair ways to reverse the austerity that is wrecking the livelihood of the many.

You can see the alternative for yourself after August 15, when 211,000 San Bernardinans will start living without public safety, employee salaries, and traffic lights.