Even among California cities that have declared bankruptcy, San Bernardino stands out as extraordinary in its own right: Its city officials had been lying about the city’s fiscal condition for nearly 20 years.
A new Reuters piece explains how the city continued to raise wages and benefits for public employees long after it became clear that these moves were putting it on the road to a budget meltdown and making it the poster child for blue model decline:
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.
The lion’s share of the blame here should go to the city and union officials that drove the city policy, but the Wall Street lenders and pension funds that are now collecting from these cities deserve their share of opprobrium as well. Calpers, the California state pension fund, has been in the news recently for threatening to take struggling cities to court to force them to pay the full value of their pension obligations. But not too long ago Calpers was pushing cities to adopt the lavish benefits that contributed to their current predicament:
A key facilitator of San Bernardino’s generous retirement packages was Calpers, which manages pensions both for state workers and for many city and county employees across California.
Led by a board of directors who are all themselves members of the pension plan, Calpers has for decades pushed to sweeten benefits for retirees.
A 1999 law championed by Calpers, known as SB 400, cut the retirement age five years and increased benefits for state workers, all on the premise that a rising stock market meant benefits could be juiced up at little or no cost. Many cities and counties, though not required to go along, were happy to heed Calpers’ analysis. About half—including San Bernardino—adopted the richer benefit formula.
This about sums it up. Read the whole thing for a detailed and eye-opening look at the final stages of blue collapse.