The American Interest
Analysis by Walter Russell Mead & Staff
For California Bankruptcies, Three's the Magic Number

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“Promises are the uniquely human way of ordering the future,” said Hannah Arendt, “making it predictable and reliable to the extent that this is humanly possible.” It seems everywhere you look in California, cities are finding out just how impossible that has become. Desert Hot Springs, a resort town of 26,000 residents, is set to spend its last dollar by spring. Pension and salary promises, mostly to police, have risen so high that the town is threatening bankruptcy. It would be the second bankruptcy filing for Desert Hot Springs since 2001, and California’s third municipal bankruptcy in fifteen monthsReuters reports:

The problems in Desert Hot Springs came to light last week when a new finance director reviewed the city’s records and discovered a $3 million shortfall in its budget of $13.5 million. Amy Aguer, the interim director of finance…said nearly 70 percent of the city’s budget was consumed by police costs, most of which were spent on salaries and pension payments to the California Public Employees’ Retirement System, or Calpers….

“What is happening in Desert Hot Springs, and San Bernardino, are not going to be highly unusual events,” Denniston said. “Calpers keeps increasing costs and many of these cities have cut costs down to where there is nothing else left to cut.”

With the San Bernardino and Detroit bankruptcy cases still ongoing, a precedent hasn’t yet been set in the US to decide whether pensioners or bondholders take the biggest fleecing when a city’s finances collapse. For now, the $277 billion California Public Employees’ Retirement System (Calpers) is holding fast that pension promises cannot be touched, either to stave off bankruptcy or to exit it.

Desert Hot Springs has both Democrats and Republicans in office; the partisan blame game doesn’t exactly work here. But, to be sure, blue model problems have never exactly been party specific. They come instead from a broad method of social organization that no longer fits economic or social reality. Ever increasing, lifetime pay and benefits for public employees simply aren’t compatible with taxpayers’s need for affordable, decent government services.

Unfortunately we’re seeing cities fail to face this reality at such an alarming rate that quite a few more may fall into the abyss before things get any better. At every level of government, the transition to a new kind of economy and means of social organization is unlikely to be pretty, short or painless.

[California image courtesy of Shutterstock.com]

Published on November 13, 2013 5:10 pm
  • Andrew Allison

    The irresponsible meets the immutable.
    The question is not “whether pensioners or bondholders take the biggest fleecing when a city’s finances collapse.” If the bonds are a taxpayer obligation, the taxpayer (surprise, surprise) will be fleeced. If not, the pensioners, as VM has been warning, are SOL.

  • Jacksonian_Libertarian

    The problem is the unsustainable extortion by the labor gang monopolies, like the Police Unions, Teachers Unions, and Public Workers Unions. There will never be enough money to satisfy the insatiable greed of these gangsters. So either the taxpayers will fight back and fire the labor gangs, or cities and states will be bled and abandoned like is happening in Detroit.