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| Where did the money go? |
"Stockton … Hercules … Lincoln … Milpitas. The list of cities has grown to four in the span of one week. These are all cities in California recently threatened with budgetary insolvency — where expenses exceed revenues. All have started to explore filing bankruptcy or drastically reducing their budgets and effectively doing the same, as would happen in a bankruptcy court.
AB 506, by Assemblyman Bob Wieckowski, D-Fremont, became law in 2011 to prevent or delay just such a run of bankruptcy filings. The California Legislature does not want a run of cities filing bankruptcy because the state budget continues to run a $20 billion annual deficit and is unable to bail out insolvent cities.
AB 506 prohibits a municipal government from filing a federal bankruptcy unless it either: 1. Undegoes a neutral evaluation conducted by a third party and involving all interested parties, including unions and creditors. This applies to the cities of Stockton, Hercules and Lincoln; or 2. Declares a “fiscal emergency” that threatens the health, safety or well-being or residents without bankruptcy protections. This applies to the city of Milpitas.
The city of Stockton has initiated the mandated neutral evaluation process preparatory to filing bankruptcy. The city of Milpitas has declared a “fiscal emergency,” preparatory to raising taxes or filing bankruptcy if a tax ballot initiative fails. The cities of Hercules and Lincoln have drastically reduced their budgets, as they would be forced to do by a bankruptcy judge. But they are all in the same “fiscal” boat with budget deficits.
The Start of the Great California Muni Bankruptcy Run?
| Stockton | Hercules | Lincoln | Milpitas | |
| Population | 290,000 | 26,000 | 43,248 | 66,790 |
| Median Household Income | $47,946 | $87,869 | $60,883 | $92,694 |
| Budget Deficit | $20 – $38 mil. | $1 mil. | $2 mil. | $5.2 mil. |
| Percent Budget for Salaries & Benefits | 82% | 51%60% 1 yr. ago | 83% | 84% |
| Percent Median Home Value Decline | 65% | 62% | 50% | 33% |
| Deficit Reduction Strategy | Determine bankruptcy feasibility | Reduce 37% of employees | Consultant hired to reduce costs | Declare fiscal emergency prior to poll to raise taxes or file bankruptcy |
| Deficit Drivers: |
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$1.85 mil. bailout of Redevopment Agency created deficit | New $16 mil. library created deficit | City had to bail out Redevelopment Agency for $39 mil. |
Each city has its own unique story as to how they ended up with an insolvent budget." Read more.
Broad archived continued reading Northern CA Bankruptcy Lawyer Blog, 3/7/12.
Submitted by Jim Alex
Posted by Kathy Meeh
5 comments:
After Vallejo's bankruptcy in 2008, the State of California passed Assembly Bill 506, which allows a municipality to restructure its debts with creditors and renegotiate employee contracts without declaring bankruptcy, thereby saving its bond ratings from the consequences of a formal Chapter 9 bankruptcy.
The City of Pacifica has taken the first step necessary for this by declaring a fiscal emergency. Whether intentional or not, our city can now aggressively bring down the cost of senior staff, department heads, fire and police, and potentially restructure its debts with creditors, including fines like the one agreed to in the recent $50 million settlement with the water board.
As of now, AB 506 seems to me like the best option for our city. Correct me if I am wrong, but of all those financial task force options, none of them included a reference to the restructuring AB 506 would afford our community.
(Received confirmation from a finance task force member that AB 506 has never been discussed or mentioned by senior staff or the committee).
Did anyone see the news reporting on the city of Vallejo and the power outages? What exactly is the problem? Lack of maintenance? Is their power deliver via pge? and if so why would they not maintain their equipment. So many questions.
@ Anon 21, I had read that Vallejo was having a hard time replacing stolen copper wire for street lights. Maybe that's what the power outage was about?
Bring on the bankruptcy. The chickens have come home to roost. There's no council of superheroes or pack of developers waiting to save us. Keep up with current events and you'll see we're going to have plenty of company. The unraveling is just beginning.
And Vallejo blew their chance to really lower pension costs.
Stockton retiree costs 16.8 million.
Pacifica's is over 20 million and rising over 1 million a year http://royceprinting.com/jobs/FOSarchive/2010FOS/05_06_10_PacificaFOS.pdf
Unless we drastically reduce wages and benefits, namely pension contributions, it's going to get ugly real fast.
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