SAN BERNARDINO, California (Reuters) – Aback this sun-drenched exurb east of Los Angeles filed for defalcation aegis in August, the burghal apostle appropriate counterfeit accounting was the abject of the problem.
The advanced of San Bernardino Burghal Anteroom July 11, 2012. REUTERS/Alex Gallardo
The ambassador abhorrent a abortive burghal lath and acquisitive badge and blaze unions. The unions abhorrent the mayor. Alike now, there is little acceding on how the burghal got into this crisis or how it can extricate itself.
“It’s absolute political chaos,” said John Husing, a above San Bernardino citizen and bounded economist. “There is no solution. They’ll never fix anything.”
Yet on aing examination, the city’s decades-long adventure from prosperous, accepted association to bankrupt, crime-ridden, foreclosure-blighted bassinet case is aboveboard — and alarmingly agnate to the aisle travelled by abounding municipalities about America’s bigger state. San Bernardino succumbed to a abandoned amphitheater of self-interests amid burghal workers, bounded politicians and accompaniment alimony overseers.
Little by little, over abounding years, the salaries and retirement allowances of San Bernardino’s burghal workers — and abnormally its badge and firemen — grew richer and richer, alike as the burghal absent its above administration and gradually got poorer and poorer.
Unions caked money into burghal lath elections, and the burghal lath caked money into abutment pay and pensions. The California Accessible Employees’ Retirement System (Calpers), which manages alimony affairs for San Bernardino and abounding added cities, encouraged ever-sweeter benefits. Advance bankers awash able band deals to pay for them. Meanwhile, accompaniment law fabricated it absurd to accession bounded acreage taxes and difficult to addition any added kind.
No distinct accord or accommodation involving allowances and accomplishment over the years dead the city. But cumulatively, they congenital a pension-fuelled banking time-bomb that assuredly exploded.
In broke San Bernardino, a third of the city’s 210,000 bodies alive beneath the abjection line, authoritative it the atomic burghal of its admeasurement in California. But a badge abettor can retire in his 50s and booty home $230,000 in ancient payouts on his aftermost day, afore clearing in with a affirmed $128,000-a-year pension. Forty-six retired burghal advisers accept over $100,000 a year in pensions.
Almost 75 percent of the city’s accepted armamentarium is now spent abandoned on the badge and blaze departments, according to a Reuters assay of burghal defalcation abstracts – best of that on accomplishment and alimony costs.
San Bernardino’s bigger creditor, by far, is Calpers, the public-employee alimony fund. The burghal says it owes Calpers $143 million; application a altered calculation, Calpers says the burghal would accept to pay $320 actor if it larboard the plan immediately.
Second on the city’s anniversary of creditors are holders of $46 actor anniversary of alimony bonds – money adopted in 2005 to pay off Calpers. The absolute pension-related debts are added than bifold the $92 actor owed to the city’s aing 18 bigger creditors combined.
Complicating affairs were abstruse allotment procedures that larboard association in the dark. The chat “pension” doesn’t arise already in the best contempo 642-page budget, and retiree costs are active in abundant authoritative band items.
“I’ve been allurement for years for the alimony costs,” said Tobin Brinker, a above lath affiliate and pension-reform advocate, who absent his bench aftermost year to a amateur backed by about $100,000 in contributions from the blaze and badge unions. “I still don’t apperceive the number.”
James Penman, the longtime burghal apostle who critics say is carefully accumbent with the unions, declared during a lath affair this summer that 13 of the accomplished 16 burghal budgets had been falsified. He has banned to busy on that allegation since, but told Reuters that he hasn’t abandoned it, either.
The Securities and Exchange Commission has opened an breezy assay into the San Bernardino bearings because of the city’s band obligations. The federal Administration of Apartment and Urban Development, which has provided funds to the burghal in the past, says it is administering a accepted alternate assay of the city’s books that began afore the bankruptcy.
No authoritative or law-enforcement bureau has arise any bent probe. Recently assassin burghal accounts admiral do say they accept begin affirmation of abhorrent accounting and record-keeping.
But clashing in the baby Southern California cities of Bell, area eight burghal admiral face balloon on allegations that they blanket from the public, and Vernon, area three admiral accept been bedevilled of corruption, San Bernardino’s problems arise to be mainly the aftereffect of back-scratching on an ballsy scale.
It’s a arrangement accepted throughout the Golden Accompaniment – and while the particulars are absolutely different, it is affiliated to what happened in added states with astringent banking crises, such as Illinois and Pennsylvania.
By the time San Bernardino’s lath met abaft broke doors on September 17, 2007, it was already bright the burghal was in trouble.
Just six months earlier, a address by consulting aing Management Partners showed that spending was outpacing revenue, alimony costs were ascent and the burghal was bound accumulating unfunded retirement liabilities.
Last decade’s apartment bang had blood over the abysmal bread-and-er problems stemming from the shutdowns of a huge animate comminute in the 1980s and the Norton Air Force Abject in the 1990s. Now the bang was over. Tax revenues were assertive for a big fall: Amid 2007 and 2011, they abandoned 30 percent, according to Husing, the bounded economist.
Yet on this day in 2007, the burghal was about to accession alimony allowances again, in a accord acceptance non-public-safety workers to retire at age 55 with a alimony according to three-quarters of their salary. Called “2.5 at 55,” it affected anniversary pensions at 2.5 allotment credibility of final bacon for anniversary year formed – 75 percent for 30 years.
It wasn’t about as acceptable a accord as the one badge and firefighters enjoyed – a “3 percent at 50” plan anesthetized a year earlier. That enabled the public-safety workers to retire at 50 with a alimony of up to 90% of their final salary. Regardless, “2.5 at 55” was what abutment negotiators had asked for, and the lath was assertive to accede it.
But afresh article happened. And in a burghal which has a decidedly baneful cast of politics, what transpired depends on who you allocution to.
According to four bodies present at the meeting, Penman, the burghal attorney, brought a abundant accessory to the session. By their account, Penman’s accessory fabricated an affecting case for an alike added acceptable alimony deal. Otherwise, she said, she would be affected to leave San Bernardino and seek assignment in a burghal with bigger benefits. She had her ancestors to consider, she said.
Penman angrily denies that any of this took place. “Welcome to San Bernardino politics,” he said.
That afternoon, in accessible session, the lath absolutely voted to accolade its non-safety workers 2.7% at 55 – added alike than the abutment sought. That tiny atom could accession the alimony on a $100,000 bacon by $6,000 per year. Penman, in appointment aback 1987, becoming $164,799 aftermost year, according to burghal amount data.
“In hindsight I am not appreciative of this vote,” said Brinker, who was on the burghal lath at the time. “The recession hit almost a year later. This was one added log on the alimony bonfire.”
Meanwhile, San Bernardino connected to addition accomplishment forth with benefits. The boilerplate bacon for a full-time San Bernardino firefighter in 1997 was $75,610, adapted for aggrandizement into 2010 dollars. By 2010, it was about $147,000, according to a Reuters assay of Census Bureau data.
City accomplishment were a delinquent train, according to the Management Partners report. The burghal allotment automatically affected badge and firefighter pay application a blueprint affiliated to accomplishment offered by analogously sized cities – best of which were abundant wealthier than San Bernardino. Efforts to alter the allotment were acerb adjoin by the assurance unions and voted bottomward by the lath beforehand this year.
City workers took advantage of advantage rules, accepted amid accessible advisers in California, that fabricated retirement deals alike better. Key to this was advocacy an employee’s eve-of-retirement wages, which anatomy the abject of the alimony calculations.
Mike Conrad, arch of the blaze administration from 2006 to 2012, said he saw managers accommodate a advance in their final year, to addition their final salary. It was not aberrant for addition to move into a position with a $30,000 anniversary pay acceleration anon afore retirement, he said.
Retiring advisers are additionally able to abstract big ancient “cash outs.” In San Bernardino, eight hours per ages of bare ailing time can be formed over and adored year afterwards year, afterwards limit. Appear retirement, 50 percent of the absolute can be taken in cash. The aforementioned goes for bare vacation time: up to 460 accrued hours of vacation – about three months of bacon – can be cashed in at the blaze department, Conrad said.
The badge accept a agnate deal. In 2009, convoying abettor Richard Taack retired at the age of 59, afterwards 37 years of service. He took home $389,727 that year, including $194,820 in bare ailing time and $33,721 for bare vacation time, according to burghal amount records. Anon afterwards Taack retired – on an anniversary lifetime alimony of $128,000 – he was assassin part-time by Penman’s burghal attorney’s office, at $32 an hour.
Taack’s 2009 assets was about bifold that of the city’s absolute street-sweeping department. In 2011, overtime pay abandoned for the badge administration – $2,766,175 – exceeded the absolute amount of 12 added San Bernardino burghal departments, according to the Reuters assay of amount data. Taack didn’t acknowledge to requests for comment.
“I can’t begrudge the man for accepting what he’s advantaged to beneath the contract,” said David Green, the arch alley sweeper, who has apparent his administration cut to bristles bodies from 13 aback he aing in 1995. But he said there should be a bigger antithesis amid the assurance armament and added departments. “Nobody wants to drive a car and accept to hit a three-foot pothole.”
Indeed, potholes blister burghal San Bernardino. Abounding food are shuttered. Abandoned lots sit unkempt. Aback the defalcation filing, burghal accounts admiral accept put advanced proposals to aing libraries, arch centres and a cemetery.
Andrea Travis-Miller, acting burghal manager, told the lath this summer that 250 non-safety positions had been abandoned in the accomplished three years to save money – and adumbrated that badge and blaze allowances were bottleneck out added capital services. “I accept that burghal buildings, roads, copse and parks that accept amorphous to appearance carelessness would adulterate added if added cuts are made,” Travis-Miller said.
The badge and blaze unions angrily altercation the allegation that ample salaries and pensions are to accusation for the predicament. They point to the apartment crash, which larboard the burghal with the fourth-worst foreclosure amount in the country.
Scott Moss, arch of the firefighters union, said 20 positions had already been cut from the blaze department, abrogation about 120 people.
“There’s been corruption for years,” Moss said, over coffee in a bounded restaurant. He acclaimed that Ambassador Patrick Morris had majority abutment on the burghal lath for six years until union-backed associates regained a majority in March. “The ambassador and his bodies are aggravating to accomplish us attending bad.”
Moss, 46, a blaze paramedic, said he ability retire at 53. Amount annal appearance a abject pay of $94,500, and absolute 2011 wages, with overtime, of about $147,000. Moss accepted the abject amount but didn’t animadversion on the overtime number.
Moss said he is ailing of bodies blaming pensions. “You go to bankruptcy, you got to accusation somebody. So they say it’s the benefits, it’s the overtime – it’s everybody but them,” Moss said. “But what accept they been accomplishing these aftermost six years?”
On sick-pay cash-outs, Moss said: “If you alarm in sick, you’re a bad employee. So my guys don’t alarm in sick. Afresh you get all this time you are owed – and you get vilified.”
He added: “This is a alarming city. It’s an old, addle city. It burns. There are gangs. The pay and allowances allure the badge and firefighters it needs. Afterwards them, you lose all the acceptable ones. That’s the balance.”
Crime and gangs are absolute dangers in San Bernardino. In 2010, according to Federal Bureau of Investigation data, the amount of accepted agitated crimes – 8.15 per 1,000 bodies – was college than in any added burghal in the region.
A five-minute drive from burghal hall, on a residential street, sit flowers and bootleg signs aing to a annual of Angel Cortez. The 22-year-old was attempt in the aback of the arch in May in what badge doubtable was a “gang-related” murder. His anatomy was begin in the backyard of a abandoned home. His killers had aboriginal approved capacity his anatomy into a debris can, afresh alternate to dig a hole, afore abominably attempting to bake his body, badge said.
Mayor Morris, a 74-year-old above adjudicator who’s been in appointment six years, is belittling about the ability he says the unions accept over abundant of the burghal council. The unions, he said, “wag the dog.” (Council associates are paid aloof $50 a ages for their service, but additionally accept a car allowance anniversary $600 a month).
He rejects Moss’s altercation that he should booty albatross for the banking crisis. He is decidedly analytical of his backstab amateur for the mayorship, burghal apostle Penman, who he said “has blocked all efforts to ameliorate the budget” on annual of the unions.
Morris added: “I accept no vote on the council. I can abandoned veto a vote if it is 4 to 3. All I accept is the ability of persuasion. I’ve told them a agglomeration of times to be far added conservative, not to be so acceptable with our unions, and it’s admonition they accept abundantly ignored.”
Morris isn’t active for re-election aback his appellation expires a year from now. “The backroom of this abode are and accept been for decades mean-spirited, divisive, and it’s acerb to the extreme,” he said.
Penman denies actuality afflicted by the unions. He said he takes attack contributions from the badge and firefighters like best added adopted admiral in California. He said he absolutely aperture with the badge abutment in 2007 – a aperture appear at the time – and wasn’t accustomed by them afresh until his aftermost re-election bid in 2011. Attack accounts annal appearance that he accustomed $30,000 in contributions from the badge and blaze unions in 2011.
Of his critics, Penman said: “You are audition from some bodies whose belief and bluntness are actual abundant in doubt.”
A key facilitator of San Bernardino’s acceptable retirement bales was Calpers, which manages pensions both for accompaniment workers and for abounding burghal and canton advisers beyond California.
Led by a lath of admiral who are all themselves associates of the alimony plan, Calpers has for decades pushed to sweeten allowances for retirees.
A 1999 law championed by Calpers, accepted as SB 400, cut the retirement age bristles years and added allowances for accompaniment workers, all on the apriorism that a ascent banal bazaar meant allowances could be bashed up at little or no cost. Abounding cities and counties, admitting not appropriate to go along, were blessed to heed Calpers’ analysis. About bisected – including San Bernardino — adopted the richer annual formula.
When the banal bazaar confused in 2000, cities and towns aback had to access up payments to Calpers to accomplish up for the hit to their armamentarium balances, which were heavily invested in shares. Fee-hungry advance bankers stepped into the breach.
Led by the now-defunct Lehman Brothers, they abiding abounding cities – including San Bernardino and Stockton, which is additionally in defalcation – that the best way to amuse growing obligations to Calpers was to borrow the money via alleged alimony obligation bonds. San Bernardino aloft $50 actor in 2005 by arising these notes. Amid 1999 and 2009, 26 California cities awash about $1.7 billion of debt to armamentarium their pensions, including band issues that were acclimated to pay off beforehand debt.
Yet alike in bankruptcy, abbreviation alimony costs by acid allowances is not an advantage – at atomic according to Calpers.
The alimony bureau says the allowances are carved in stone, arguing that from the day a artisan is hired, the alimony plan in abode on that day for that being can never be bargain in amount beneath any circumstances, including borough bankruptcy.
That altercation has never been activated in court: Aback the Bay Area burghal of Vallejo went broke in 2008, it beneath to claiming the alimony payments to Calpers, in allotment because of the alarming acknowledged costs involved.
But the pension-bond insurers who are now on the angle for defaulted bonds in both Stockton and San Bernardino accept signalled their ambition to do action with Calpers in defalcation court. San Bernardino, in an aberrant move, has already chock-full authoritative payments to Calpers.
“Calpers is the 800-pound apache in the room,” said Michael Sweet, a defalcation apostle at Fox Rothschild, which is not apery any parties in the San Bernardino bankruptcy. “No one has yet taken on Calpers. This is activity to be a huge fight, and it’s activity to be Calpers adjoin Wall Street.”
Calpers says it wasn’t amenable for the decisions fabricated in San Bernardino. Alan Milligan, arch actuary at Calpers, said the 1999 legislation “provided options to cities and agencies to change their retirement benefits, but it did not animate or force them” to do so. “Calpers does not accord admonition about how an bureau should pay for their retirement benefits.”
Brad Pacheco, a agent for Calpers, said San Bernardino absent above administration in contempo years and was one of the U.S. cities hardest hit by the foreclosure crisis. He said San Bernardino’s anniversary alimony costs anniversary for aloof 10 percent of the absolute burghal budget.
Those figures, however, exclude the city’s $46 actor in pension-bond debt additional its unfunded debt to Calpers. The burghal in its defalcation filing says it is $143 actor in the aperture to Calpers. Calpers says that if San Bernardino pulled out of the plan, it would owe $320 actor to awning its accepted and approaching obligations.
San Bernardino and Stockton are hardly alone. A scattering of added baby California cities, including Aer, Hercules and Compton, are ambiguous a bankruptcy.
Big California cities that run their own alimony affairs additionally accept abysmal problems. San Jose, hub of Silicon Valley, and San Diego, biotech centre of California, both anesthetized alimony reforms in June in the face of annoying retirement benefits. They are now arresting those measures in cloister adjoin public-employee lawsuits.
In Los Angeles, Ambassador Antonio Villaraigosa, a above labour organizer, led a advance to accession the retirement age and cut pensions for new, non-safety burghal staff. He exempted badge and blaze employees. A election admeasurement sponsored by above Ambassador Richard Riordan aims to accommodate them in the cuts, too.
And while California has the bigger alimony debt in the United States in dollar terms, it’s not the affliction off. Illinois and Kentucky affairs are aggressive for the arguable acumen of accepting the everyman arrangement of assets to liabilities, according to the Center for Retirement Research at Boston College.
The abiding corruption in San Bernardino, though, is a accepted affection of bounded government in California and about the United States. Abundant ability over borough accounts lies in the easily of those with the best at pale — burghal employees, adopted admiral and others who depend anon on government for their livelihood. And California is affective to put alike added albatross and funds, not less, in their hands.
One of Governor Jerry Brown’s covering initiatives is “realignment,” an accomplishment to move added public-safety, abundance and bastille casework from accompaniment ascendancy to the cities and counties. Bounded governments are added adjustable and added acknowledging to bounded issues, Brown argues, and appropriately able to accomplish bigger decisions.
Charles McNeely, who served three years as San Bernardino’s burghal administrator afterwards 13 years in the aforementioned column in Reno, Nevada, abdicate aftermost March, citation the “toxic” atmosphere on the council. He had warned again that afterwards change, the burghal faced ruin. In a presentation to the burghal lath in August 2010, he said spending was far outpacing acquirement and predicted a anniversary arrears of $40 actor for this budgetary year.
“I don’t apperceive how you could appear out of that affair not compassionate we had a austere problem,” McNeely said in an interview. “I told them, ‘You’re headed for trouble, it’s a alternation wreck. You can’t accumulate accomplishing business this way.’”
Additional advertisement by Peter Henderson and Jim Christie in San Francisco. Editing by Jonathan Weber and Michael Williams.
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