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Why California Cities Go Broke
By Ann K. Williams
September 24, 2012 – A handful of Santa Monica's elected officials – past, present and future hopefuls – learned last week why California cities go bankrupt and what they should do to make sure it doesn't happen here.
The Santa Monica College Public Policy Institute hosted a seminar Wednesday night on municipal bankruptcy moderated by former State Senator and Assemblymember Sheila Kuehl that drew an audience that included City Council candidates Shari Davis, Frank Gruber and Bob Seldon, current Council members Kevin McKeown and Gleam Davis, former Mayors Judy Abdo and Michael Feinstein and former Council member and current candidate Antonio Vasquez, along with City Manager Rod Gould.
Ventura City Manager Rick Cole blamed “high poverty,...the economic crisis, overly expensive labor contracts, dysfunctional government and mismanagement” for the financial collapse of Stockton, San Bernardino and Vallejo, calling the cities the “canaries in the coal mine.”
Although pension costs weren't the immediate cause of the recent spate of municipal bankruptcies in California, they're “a huge problem,” said Cole.
CalPERS, the state's pension fund that pays benefits for city employees, is $150 billion in the hole and the number will probably go higher, he said.
What's the answer? Elected officials have to be accountable for how they spend their cities' money, said Cole.
It's tempting for city officials to promise more than they can deliver, said Sonia Caravalho, a partner in Best, Best & Krieger LLP, which acts as City Attorney for the cities of Santa Ana and Claremont.
“It's very difficult to say no. It's easier for the elected official to say yes,” said Caravalho.
Approving contracts and redevelopment plans are “easy when times are good,” she said. “It makes [the officials] look good, especially when they're about to run” for office.
Then “the costs kick in” a few years later, she said.
“The answer is setting priorities,” said Caravalho. Like a family facing hard times, cities need to decide what they can do without, what they won't do without and what they simply have to cut.
And elected officials have to insist on receiving the financial information they need to do their job.
“It's the responsibility of the persons elected to ask good questions...to ask for the financial impact of their decisions,” she said.
Ultimately, it's the people who elect the officials who are responsible, added Cole.
“California finance is not for amateurs,” he said. Voters need to make sure their government officials have the same level of financial skills as do board members of large organizations.
There's “nobody to blame but ourselves” if we don't elect competent financial overseers, said Cole.
“What makes California's economy so bad?” wondered council candidate Gruber.
Cole didn't think it was just California.
The United States borrowed $1 billion a day from the rest of the world during the years leading up to the 2008 recession, he said.
“We weren't doing so well; borrowing made it look like we were doing well,” said Cole.
Former Mayor Feinstein worried that the City of Santa Monica may make “short term choices to give away great things that we'll never get back.”
It's a question of priorities, said Caravalho. Just like families doing their budget, city officials need to decide if “there are things that are sacred to us.”
Officials need to have a discussion on what they are going to protect, she said. “If not, the decisions are made for them.”
The Public Policy Institute of Santa Monica College hosts community discussions covering issues related to social, environmental, political and economic issues on a local level.
To find out more about the Institute, go to http://www.sheilakuehl.org/public-policy-institute-smc
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