Salaries, mistakes slammed San Bernardino into bankruptcy

July 20, 2012

By Tori Richards

SAN BERNARDINO — The bankrupt city of San Bernardino has displayed its shortcomings in a 54-page report that outlines myriad areas where ineptitude has placed them in a position where they cannot meet payroll next month.

On Jul;y 18. city council members received a report titled, “Budgetary Analysis and Recommendations for Budget Stabilization,” a primer of sorts that outlines various city departments where cost cutting moves could be made.

“This problem has been coming for a long, long time,” Councilman Fred Shorett said during the meeting. “[But] we’re here now. Any kind of wrongdoing — which I do not believe — that will come up as well. This bankruptcy has fallen on our watch. We own it and we are responsible now to fix it and stop the finger-pointing.”

The council voted to declare a fiscal emergency and file for bankruptcy in order to stave off a $46 million deficit that has left the city so poor it cannot even pay for an expert witness in a lawsuit against the police department.

Due to accounting errors, city officials believed they had more money than was actually in the coffers. In fiscal year 2010-11, the reported balance was $1.7 million, when it was actually only $410,293. And the following fiscal year, the reported balance was $2 million, when it was really minus $1.18 million, according to the report.

Even with the imminent bankruptcy filing, the city still has to pare down expenditures so it can function in the near future. The report shows numerous areas where the city has been living a lifestyle that was well beyond its means.

Personnel

The biggest investment any municipality makes is its work force and San Bernardino is no exception. However, some of its policies have created this debacle, said UCLA economics professor Lee E. Ohanian, who is also a senior fellow at the Hoover Institution at Stanford University.

“Unfortunately, it’s not all that surprising,” Ohanian said. “You tend to see some small cities and other municipalities make bad financial decisions, some of which may reflect inexperience on the part of city leaders and some of which is not enough checks and balances on city budgets.”

The city has laid off more than 250 people in the last three years. However, personnel costs continue to rise as the existing employees work overtime to keep up with the workload; and pensions continue to rise.

The 2011-12 fiscal year has $102 million budgeted for personnel expenses. That number is expected to increase $10 million a year, the report said. Labor is 73 percent of the general fund. Public safety comprises 79 percent of the entire general fund personnel expenditures, the report said.

Among the items discussed on the report:

* For most of the employees, the city has paid their entire pension. As of October 2011, new hires have been paying a share. However, the city should negotiate with current employees to have them pay a share, such as Newport Beach’s new 50/50 cost sharing policy. San Bernardino’s employee rate is 8 or 9 percent, depending on the job classification.
* Most employees are at the top of their salary range because some labor groups have just five or six pay-raise levels. “Consequently, it takes only three and a half to four years for the employee to get to the top step,” the report said. Some employees have received raises of 8 or 9 percent annually their first few years. A 10-15 step range would be more cost effective.
* Part-time or contract employees should be used.

Operations

Other areas could run more efficiently, the report said. Among the propositions are contracting out the fire department, 911 system and animal control to the county of San Bernardino.

Additionally:

* Strengthen collections for code enforcement, false alarm fees and paramedic subscriptions. The latter is currently $24 a year, which is half of the regional average.
* Increase property transfer taxes to levels consistent with other cities.
* Impose a tax on utility services not currently taxed: sewer service and trash collection.
* Sell surplus city-owned land parcels to generate tax revenue.
* Consider having civilians teach police training classes rather than sworn personnel.

The report recommended that city officials not try to increase the sales tax or raise taxes on hotel beds.

Professor Ohanian said city officials need to look at their geographic area and realize that they can’t view their budget as if they were living in Newport Beach or Beverly Hills.

“If everybody is making a six-figure salary, when a lot of people in private sector aren’t making that, it’s not good,” he said.

He also surmised that the lack of competition for services means that city officials don’t have a true idea of what something costs.

“For example, with some cities there is a competition for refuse contracts,” Ohanian said. “The city then gets a sense of what it costs for trash pickup on a regular basis. They should be looking around and saying, ‘What would it cost us to competitively hire people?’ That is the place where cities invariable get in trouble and tend to overpay. Not only in salaries and services, but pensions. I don’t know who they are comparing themselves to, but it shouldn’t be Beverly Hills.”

The council members admitted that mistakes have been made and noted a need for transparency, something that has not existed in the past. And the bankruptcy proceedings themselves will lay bare all contracts and expenditures.

“Communicating early, transparently and frequently about proposed changes, as well as why the changes are important, is an essential part of effective change management,” the report said, under the heading, “COMMUMICATIONS AND TRANSPARENCY.”

With the cost of labor clearly not keeping pace with unemployment that is 5 percentage points higher than the state average, and a housing market that is also at the bottom of the state, Ohanian questioned the reason behind approving such contracts.

He asked, “How much of this involves honest mistakes vs. just wanting to keep people happy? The way to get around this is voters become better informed and demand to understand to see these contracts.”

27 comments

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  1. Ted
    Ted 20 July, 2012, 08:33

    Sounds like alot of good ideas in that report. Also sounds like the culprit here is a grossly mismanaged civic corp.

    Discuss–

    Teddy Almighty

    Reply this comment
  2. BobA in San Diego
    BobA in San Diego 20 July, 2012, 08:49

    In politics there’s no such thing as an honest mistake. Anyone who believes that is at best dangerously naive.

    Reply this comment
  3. Ted
    Ted 20 July, 2012, 09:15

    Boba— Are you saying that there has never been a mistake in politics?

    Sheeeeeeesh ™

    Reply this comment
  4. Ulysses Uhaul
    Ulysses Uhaul 20 July, 2012, 09:40

    Painful stuff but best get all these cities cleaned up for the next round of leveraging.

    About six years ago a fellow real estater and I had lunch to discuss new regulations, liability case awards and market conditions.

    My friend lost out in a home purchase bidding war…multiple offers,etc. He was unhappy.

    The winning buyer: Home price $575,000. 4 bedrooms. Buyer’s job as maintenance man in a major resort hotel making $40,000 annually. He got the loan using signed rental agreements from five people at a $1000.00 per month each. One of the rooms was the KITCHEN.

    A closer investigation of citys’ finance gotta make my friend’s story quite ho hum!!!

    Reply this comment
  5. Donkey
    Donkey 20 July, 2012, 10:45

    The report could have been reduced to one page with the words: We are over compensating the RAGWUS members with obscene Pay, benefits, perks, and pensions. If we cut this to what the average homeowner makes in SB, we will have all the cash we will ever need! 🙂

    Reply this comment
  6. Ted Steele, Associate Prof.
    Ted Steele, Associate Prof. 20 July, 2012, 10:47

    Pack n Ship— I am a very large man and a huge eater– the kitchen would be fine with me.

    Reply this comment
  7. Rex The Wonder Dog!
    Rex The Wonder Dog! 20 July, 2012, 10:51

    Public safety comprises 79 percent of the entire general fund personnel expenditures, the report said.

    =

    There is your problems, you CANNOT comp HS eductaed emoployees $250K per year, saw the exact same problemwith Vallejo, where public safety was 80% of budget, and Stockton too.

    Reply this comment
    • Eric
      Eric 16 November, 2013, 14:28

      First, the true number based on the City’s own figures is that public safety comprises only 69% of the entire personnel expenditures compared to an industry average of 80%. Second, most police and firefighters are college grads and non make $250,000 per year. Only the City manager makes that kind of money in San Bernardino. Third, to get above the money that they are making (mostly the fire department since that’s who the City keeps pointing at) most are working an average of between 96 and 120 hours per week, every week of the year. A gas meter reader gets paid more per hour, they just work 3 to 4 times the hours.

      Reply this comment
  8. Rex The Wonder Dog!
    Rex The Wonder Dog! 20 July, 2012, 10:55

    Professor Ohanian said city officials need to look at their geographic area and realize that they can’t view their budget as if they were living in Newport Beach or Beverly Hills.
    “If everybody is making a six-figure salary, when a lot of people in private sector aren’t making that, it’s not good,” he said.

    LOL….HS educated secretaries and janitors making $100K plus…gotta love it. Only in gov….

    Reply this comment
  9. BobA in San Diego
    BobA in San Diego 20 July, 2012, 11:25

    Ted:

    Don’t be so naive. Of course there are mistakes in politics all the time but to call them “honest mistakes” is evasive and misleading on the face of it. All legislation pass by federal, state and local governments is tediously vetted for weeks and months before being voted on.

    Is rushing to pass legislation without considering the unintended consequences and “honest mistake?” When politicians get caught up in some scandal and then apologize when the get caught, was that really an “honest mistake?” Too many times we have heard politicians use the excuse that they made an “honest mistake.” I don’t buy it and neither should you. That is the crux what I meant.

    Here’s a perfect example: the Affordable Care Act (aka, Obamacare)is chocked full of “honest mistakes” that is going to raise a whole slew of hidden taxes folks aren’t even aware of yet. Many of those hidden taxes are now coming to light and I will bet you dollars to donuts that when people find out about the number of taxes they’re going to be hit with, our esteemed congress folks will claim that it was an “honest mistake” when they start getting barraged with nasty tweets and emails.

    For what it’s worth, I was as born at night but I assure you that it wasn’t last night so when politicians use the excuse that it was an honest mistake I say, bull$hit!! I don’t own a cow so I don’t need their bull.

    Reply this comment
  10. Rex The Wonder Dog!
    Rex The Wonder Dog! 20 July, 2012, 11:40

    LOL…Bob is trying to reason with the resident troll…. 😉

    Reply this comment
  11. Tom in SoCal
    Tom in SoCal 20 July, 2012, 12:18

    How do you not know how much money is in your account. What no one knows how do a bank reconciliation???

    Reply this comment
  12. Ulysses Uhaul
    Ulysses Uhaul 20 July, 2012, 12:33

    The Adelanto Boys did alternative high school….they turned out pretty good!

    Reply this comment
  13. Rex The Wonder Dog!
    Rex The Wonder Dog! 20 July, 2012, 17:30

    Remember the High School that was built in LA that we can’t use because it is a toxic sight after the state’s tax payers spent millions, or the fiasco about phone lines to no where after the Martin Luther King Hospitol was closed, or the Tax collector for San Bernardino County, is he still in jail?, the budget deficit that went from $10 – $16 Billion over night because some ones calculator was broken, or the 14 out of the last 16 financial statements from the City of San Bernardino that have been found to be fraudulent, has any one been charged with fraud?

    Reply this comment
  14. BobA in San Diego
    BobA in San Diego 20 July, 2012, 17:47

    Rex:

    Chill out my friend. After all, it was….. (wait for it)……… an honest mistake!!!

    An honest mistake on the part of politicians wouldn’t be so bad if they didn’t cost us so damn much. Their honest mistakes is being made with “other peoples money” which just so happens to be our tax dollars.

    Reply this comment
  15. BobA in San Diego
    BobA in San Diego 20 July, 2012, 17:55

    Ulysses:

    Some trolls are just plain dumb while other trolls are just plain stupid. But no troll is just plain dumb and stupid!!

    Reply this comment
  16. Ted Steele, Associate Prof.
    Ted Steele, Associate Prof. 20 July, 2012, 23:07

    Poor Poodle does not really understand what the grownups are discussing!

    Reply this comment
  17. Rex The Wonder Dog!
    Rex The Wonder Dog! 21 July, 2012, 14:38

    1%%%%%%%%%%%%%%%%%%%%%%%%5

    COMPTON baby!

    Reply this comment
  18. Ted Steele, Associate Prof.
    Ted Steele, Associate Prof. 21 July, 2012, 15:15

    poor Poodle— only 29,982 more muni bk’s before his pension envy is sated.

    lol ™

    Reply this comment
  19. Rex The Wonder Dog!
    Rex The Wonder Dog! 21 July, 2012, 23:54

    Sb Compton, CalTURDS next baby……. 1%%%%%%%%%%%%%%%%%

    Reply this comment
  20. Ted Steele, Associate Prof.
    Ted Steele, Associate Prof. 22 July, 2012, 07:29

    Poodle— You have already predicted the bk/demise of calpers as 2013——

    lol——– you’ll be 0 for 10 then !

    Baaaaaaaaaaaaaby!

    Reply this comment
  21. Hondo
    Hondo 22 July, 2012, 10:24

    The whole notion that the city council of San Berdoo didn’t know where the money went is like Hitler saying he didn’t know where the Jews went.
    The city manager ( the one who is alleged to have lied to the city council) is an employee of the city council. It is the job of the city council to supervise their employees. If the city tries to arrest or sue the alleged city manager I’m sure he has covered his ass and that everything he has done was with the full approval of the said city council.
    The people who are being lied to are the VOTERS AND THE TAXPAYERS OF THE CITY OF SAN BERDOO.
    Hondo…..

    Reply this comment
  22. Rex The Wonder Dog!
    Rex The Wonder Dog! 22 July, 2012, 21:30

    Teddy-I predicted what about CalTURDS in 2013?? Link please Mr Troll 🙂

    Oh, I almost forgot………………..1%%%%%%%%%%%%%%%%%%%% BABY! 🙂

    Reply this comment
  23. Ted Steele, Associate Prof.
    Ted Steele, Associate Prof. 23 July, 2012, 09:12

    0 fro 9 baaaaaaby !

    Do your own work slave troll !

    Reply this comment
  24. TheBeachBum
    TheBeachBum 23 July, 2012, 12:33

    The primary factor driving San Bernardino into bankruptcy is a 1995 city charter amendment engineered by the police and firefighter unions that requires their pay be based on average police and fire pay in 10 comparably sized California cities. But all 10 – including Thousand Oaks, Irvine and Huntington Beach – are much wealthier than San Bernardino, which is one of the poorest cities in the nation.

    The predictable result: Public safety costs now eat up three-quarters of San Bernardino’s budget. Average annual police pay is $95,000. Firefighters average more than $130,000. And last year, the city’s highest-paid employee was a police sergeant who made $317,179.

    Given the city’s union-rigged charter, the only surprise about San Bernardino’s bankruptcy is that it didn’t happen sooner.

    Reply this comment
    • Eric
      Eric 16 November, 2013, 14:42

      Well, the charter amendment that you refer to sets only the salaries for police and fire and it was upheld in a regular scheduled election in 2005. And it uses all cities in the state between 100,000 and 250,000 population, then the City throws out the highest and the bargaining unit throws out the lowest until 10 are left. So it’s really an average of the median like sized cities. And since it’s the average….some are lower paid than San Bernardino and some are Higher. The employees don’t always get raises, sometimes they get pay cuts. The firefighters average you listed is with overtimes since most firefighters are working between 96 and 120 hours per week because the City cut costs by not filling positions. Now they complain about the workers that are still there making too much to pick up the work load that keeps increasing? The union didn’t “rig” the charter, an informed public voted it in so politicians couldn’t reward unions for backing them with better contracts.

      Reply this comment

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