Elected Officials Across The Country “Leading” Municipalities to Bankruptcy

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Dick Baynton
Dick Baynton

The headline on 5/10/13 edition of ‘The Roanoke Star.com’ trumpeted these words, “Council Raises Own Pay 28%.” Upon reading the article, it was surprising to learn that the original proposal was for an increase of 48%! As an act of generosity (or guilt), a 1% pay increase was handed out to new city employees to offset the additional cost of enrolling them in a Health Saving Plan. Starting in July of 2014, 5% will be withheld from employee paychecks to cover their Pension plan. An offsetting pay increase of 5% will be in their paychecks.

There are two elements of these changes to assess. When any jobholder, private or public, has the ability to set their own pay, there are great opportunities for abuse. For example an investigation in Bell, California, a middle class suburb of about 38,000 in Los Angeles County revealed that the mayor and several council members had conspired to enhance their compensation. The mayor was making $800,000 and the police chief was receiving $400,000 annually.

Another concern is that although city employees will have to start paying for retirement and healthcare, the city is apparently covering those increases by higher pay in identical amounts. This suggests that employees have no ‘skin in the game.’ Whatever happened to self-reliance? Do employees transfer all personal responsibility of retirement and medical care to city government?

The small city of Central Falls, RI with a population of about 19,000 people and a median income of $34,000 was faced with $80 million in pension liabilities. Additional debt of $21 million was due and the $16+ million budget was short $5 million to meet current obligations. Filing bankruptcy in 2011, the city emerged from Chapter 9 bankruptcy in 13 months. As a result of the bankruptcy, many retirees sustained substantial reductions in retirement benefits although bondholders were left unscathed.

Faced with debt of $350 million, Pennsylvania’s capital of Harrisburg and home to 50,000 residents is currently considering Chapter 9 bankruptcy. Last year about 20 cities in the state, including Scranton and Pittsburgh were reported to be financially distressed municipalities as defined by a state statute.

Here are some other horror stories. The city of Stockton, CA with a population of almost 300,000 and 2,400 retirees owes the California Public Employees Retirement System (CalPERS) $900 million plus a similar amount in bond debt. Last month, a federal judge issued approval for Stockton to enter Chapter 9 bankruptcy. Latest reports indicate that the bondholders will receive less than their investments but the funds for retirees will be restored.

At $4.2 billion, Jefferson County, Alabama is the largest local government ever to file bankruptcy (Chapter 9) in the U.S. Their debt overload occurred because of the revamp of their extensive sewer system that was financed by the issuance and sale of $3.2 billion of municipal bonds. The county is hoping to emerge from bankruptcy in 2013 assuming the bondholders are willing to take a substantial ‘haircut’

The examples above point out the skid our country is taking toward handing over too much authority to inept politicians who offer excuses in lieu of accountability. At the same time, these government officials take for themselves and offer a constantly increasing stream of benefits to workers that reduce the worker’s sense of responsibility and sharpens their desire to vote for the people that provided the benefit(s).

Many elected officials enter the race to serve but once elected invent the illusion that they are overworked and underpaid, confusing lip service with leadership. Most government blunders are not unlawful; it’s just that bad decisions are cumulative. Good decisions, also cumulative, should be based on experience, common sense and grade school arithmetic.

– Dick Baynton