San Bernardino, California – On the front door of the San Bernardino city hall is a sign that reads: “Out of Order.” Broke city, broken door: There’s a certain pleasing symmetry in the fact that the San Bernardino city council meets behind a door that, like the city government itself, does not work and is in need of replacement. On this particular evening in late July, the council has met to make public what everybody already knows: Intellectually bankrupt, morally bankrupt — the city is under criminal investigation for sundry financial shenanigans — San Bernardino is above all old-fashioned bankrupt bankrupt, a pitiful penniless pauper that cannot even afford a cup of coffee: Seriously — the coffee guy wants cash up front now and has stopped serving the municipal office building until the city makes good on its latte liabilities. This is a paddle-free scato-riparian fiscal expedition of the first order.
After a great deal of self-congratulatory speechification — during which one council member used the phrase “the buck stops” no fewer than five times without once getting it quite right, laid out a little Boston Consulting–style two-by-two matrix to explain his analysis of the situation, repeatedly reminded the citizens of how often he had “prayed for strength” during his four long months in elected office, and generally made a po-faced spectacle of himself — after all that, the feckless ladies and clueless gentlemen of the San Bernardino city council voted to seek shelter under Chapter 9 of the U.S. bankruptcy code, a law that deals specifically with municipal bankruptcies and grants cities an extraordinary level of protection during financial reorganizations. A phalanx of pant-suited she-bureaucrats and the city attorney explained that in addition to filing for bankruptcy, the city needed to declare a fiscal emergency, because it did not have enough money even to last through the 60-day waiting period that would follow initiating the bankruptcy. The moment was not without levity: When one of the ladies of the city council inquired as to which court would hear the case, the city attorney explained that he was pretty sure the city’s filing under federal bankruptcy law would be heard in federal bankruptcy court. When another council member inquired as to why the city was filing under Chapter 9 instead of the more famous Chapter 11, the city attorney gently explained that the municipality was filing under the municipal-bankruptcy law because it is a municipality, not a guy with hospital bills and a mortgage in default.
San Bernardino spends about 75 percent of its general-fund budget on salaries, benefits, and pensions, with the vast majority of those expenses coming from one class of employee: public-safety workers, meaning cops and firemen, who earn as much as $230,000 a year with overtime. Their pensions, as will not surprise anybody who has been paying attention to government finances in recent years, are extraordinarily generous. In 2007, a consulting firm warned the city that its budget was in trouble because its personnel costs were growing considerably more quickly than revenue, and the city’s response was #. . .# to offer even more generous pensions in the same year. The firemen are fat and happy in the California sunshine, but the rest of San Bernardino is not doing as well: “When times were good, my wife and I didn’t go hog-wild and play the let’s-get-a-bigger-house game,” says Mike Potter, who works for a local construction firm. “But now times aren’t good. At my company, 50 percent of the employees have been laid off, and I’ve taken a 15 percent pay cut. I was the head of engineering, and now I’m also a part-time receptionist and janitor.” He is one of the lucky ones — the local unemployment rate runs around 15 percent — and he is blunt on the subject of what encumbers San Bernardino and other bankruptcy-bound California cities: “The public-employee unions are killing us. They are killing our cities, our states, and our country.”
John Magness, the biggest real-estate developer in San Bernardino, is bearish on the city’s near-term prospects. “No respectable developer would risk its relationships by getting its clients to locate in a city with this risk,” he says. He estimates that his company’s projects have added $1 billion to the city’s tax base and about 5,000 jobs over the past decade, but finds himself “reluctant to encourage customers to come here in this uncertain environment.” He spoke in favor of the bankruptcy filing and fiscal emergency, arguing that it would give the city an opportunity to run a river of reform through the Augean stables of its finances, renegotiating contracts and rewriting the city charter. The local business leaders were nearly unanimous in endorsing the measures.