California = Liberal Failed State

[Soul Crusher]

First Vallejo, then Stockton, then Mammoth Lakes, and now San Bernardino and soon possibly Compton. As Orange County Supervisor John Moorlach told Bloomberg News, the bankruptcy dominoes are starting to fall. One California city after another—following a decade-long spree of ramping up public-employee pay and pension benefits, as well as redevelopment debt—are becoming insolvent.

Not that the state’s legislators have anything constructive to offer. California’s Democratic leaders are not only unwilling to rein in the costs of benefits for their patrons, the public-sector unions, but they have been erecting roadblocks to those localities that want to fix the problem on their own. Yet all the political blockades in the world cannot fix the basic problem of insolvency.

Stockton negotiated the new process created by a state law requiring a 60-day period of negotiations before filing for Chapter 9 bankruptcy. That period is over and the city—a hard-pressed port on the edge of the California Delta—has become the largest city in the country to pursue municipal bankruptcy. The cause was a pension system eating up 30 percent of the budget, an absurdly generous retiree medical program, and excess bond debt for pension obligations and redevelopment projects.

Soon after, Mammoth Lakes decided to pursue bankruptcy. That city’s problem came after it lost a judgment in a development case. Although not tied to public-employee compensation, the situation was caused by city officials who prefer to play developer than tend to the nuts-and-bolts of city government—a long-term problem in that eastern Sierra vacation town. In 1996, Mammoth Lakes lost a court case after it declared its downtown area blighted because of excess urbanization, in a ruling the judge said exemplified the misuse of redevelopment power.

The latest city to declare bankruptcy is San Bernardino, which has declared an emergency situation that will allow it to evade the negotiation period mandated by state law. The city simply doesn’t have the cash to keep operating. As Bloomberg reported, “San Bernardino and its agencies have more than $220 million of debt, including $48.6 million of taxable pension-obligation bonds, according to financial statements.” Pension-obligation bonds are used by cities to pay ongoing pension expenses, yet San Bernardino’s problems show that a city cannot borrow its way out of debt.

Other big cities, including Los Angeles, are talking more openly about the bankruptcy option. Not long ago critics who mentioned the B-word were considered Chicken Littles.

The latest talking point is that these cities couldn’t control what happened to them. The Riverside Press-Enterprise reported: “The city of San Bernardino’s financial woes are a directly correlation to a torrent of foreclosures in the Inland area of Southern California, the national foreclosure tracking firm RealtyTrac said Thursday. ‘Property taxes plunged in San Bernardino because of an avalanche of foreclosure activity during the recent housing bust,’ said RealtyTrac vice president Daren Blomquist.”

There’s no doubt San Bernardino and Stockton—Ground Zero for the housing crisis—suffered from the problem described above. But what did those cities do with the rapid increase in property tax revenues during the price run-up? We know—they squandered it on increased compensation for government employees, on redevelopment projects and other questionable spending deals. They squandered the money when it came flowing in, now depict themselves as victims of circumstance when the funds dried up.

The real culprit is foolish decision making. Stockton, for instance, refused to take advantage of an exemption in prevailing wage laws—something that could have saved it money but would have angered the powerful unions.

The housing bubble hit the hardest in cities inland from the growth-controlled major metropolitan areas. When the prices went up in Los Angeles and San Francisco, developers moved inland, where it was easier to get the permits necessary to respond to the demands of the marketplace.

But even coastal cities are struggling. Los Angeles is not a victim of the foreclosure crisis. Pension costs in San Jose—where the housing market has rebounded thanks to a healthy tech-based economy—rose 350 percent in 10 years and now consume 20 percent of the general-fund budget. That city passed pension reform on the November ballot to stop the fiscal bleeding.

In the Prop Zero blog Joe Mathews debunks San Bernardino’s allegations that the state is to blame for its fiscal problems: “Local elected officials who complain about a lack of state money have things backwards. The state of California is relatively spare in its spending, compared to national averages. California’s local officials are, by contrast, big spenders, at or near the national lead in compensation for local workers, especially law enforcement.” Mathews misses a big point—California state government spends its money poorly, but he is right about local government wastrels, who busted the bank on public-safety pay and benefit packages and now are looking to cast blame anywhere they can.

Bankruptcy is not a great option but at least it gives cities a chance to get their house in order and start fresh. Unfortunately, Vallejo and Stockton refused to tackle existing pension debt in their bankruptcy plans. Orange County emerged from bankruptcy in the 1990s in better shape than ever, but as writer Chris Reed explained in Calwatchdog, subsequent boards of supervisors then began spending like crazy on public-sector compensation.

Bankruptcy cannot stop future officials from wasting the taxpayer dollar. But when there’s no money, there’s nothing left to do. In Scranton, Pa., a judge issued an injunction to stop the mayor’s plan to begin paying all city employees minimum wage. But there’s no money left to pay any more than that, he said. The city will gladly pay more as soon as it has the cash to pay it.

Only when the money runs out will cities find the necessary solutions. That’s perhaps the saddest commentary on the situation in California cities these days.

Steven Greenhut is vice president of journalism at the Franklin Center for Government and Public Integrity.

[Soul Crusher]

Donors who bailed out California state parks want their money back
San Jose Mercury News ^ | 07/26/2012 05:43:29 PM PDT | By Paul Rogers
Posted on July 28, 2012 2:29:00 PM EDT by DeaconBenjamin

Betrayed by the discovery of $54 million hidden in two state parks accounts, groups that donated money to keep California state parks from closing this year now say they want a refund -- or at least a binding promise from lawmakers to spend the extra money on parks.

"They sort of came to us under false pretenses. They cried wolf, and we responded," said Reed Holderman, executive director of the Sempervirens Fund. "An elegant solution would be for them to refund the nonprofits, and put whatever is left into parks."

State Parks Director Ruth Coleman resigned Friday and her top deputy was fired after Gov. Jerry Brown's administration announced the state parks department had kept $54 million in two accounts without reporting it to the state Department of Finance.

Brown announced last year that the state was so short of cash that 70 state parks -- one-quarter of the entire system -- had to be closed by July 1 to save $22 million. Critics called the threat a political gimmick to convince middle-class voters to support Brown's tax increase measure on the upcoming November ballot.

What happened?

Reportedly, $20.4 million of the unreported money was from state park entry fees traditionally used to fund parks. Another $33.5 million comes from registration of off-highway vehicles and used to fund parks for motorcycles and dune buggies.

"The $20 million, that money came from folks visiting the parks, spending money at the parks. It's obvious it should be used for state parks."

State legislative leaders were noncommittal on Thursday.

"There's no determination at this point," said a spokesman for state Senate President Pro Tem Darrell Steinberg, D-Sacramento. "The priority is to get to the bottom of the situation and figure out what happened. And then we go from there."

(Excerpt) Read more at mercurynews.com ...





Good luck suckers. 

[Soul Crusher]

Cities In California Are Declaring Bankruptcy To Avoid Governor Brown's Ridiculous Tax Raises
Michael Boskin, Project Syndicate|11 minutes ago|1|
 


While central governments’ fiscal problems plague many economies, a parallel crisis is enveloping many subnational governments around the world. From Spain to China to the United States to Italy, these governments – regions, states, provinces, cities, and towns – face immense fiscal challenges. Higher levels of government are “on the hook” to bail out local insolvent governments, and may even suffer bond downgrades as a result; in Spain, Italy, and China, that role falls to the national government, and for US cities and towns, to their states.
 
There are many similarities within and among countries in terms of the nature and causes of these local fiscal calamities. Local officials used growing revenues during the boom to fund pet projects or boost pay and benefits, with little regard to future costs. In the downturn, revenues and subsidies from the central government collapsed and the bills came due. Creative accounting gimmicks masked the full extent of the problem. Now comes the reckoning.
 
To finance local businesses, Chinese local governments use local-government financing vehicles (LGFVs) to circumvent bans on direct borrowing. In Spain, housing and employment collapses have hammered revenue. Rumors of an imminent default swirl around Sicily, whose governor has resigned as borrowing soared after cutbacks from Rome. A new report from a task force co-chaired by former Federal Reserve Chairman Paul Volcker indicates that unfunded pension and health-care costs make many American states’ medium- and longer-run fiscal prospects bleak.
 
California’s fiscal crises may also provide lessons for subnational governments around the world. Three California cities have recently declared bankruptcy: Stockton, the largest American city ever to do so; San Bernardino, the second-largest bankrupt city; and Mammoth Lakes. Compton is rumored to be next; most observers expect more to follow.
 
The state faces another large budget deficit, yet Governor Jerry Brown’s budget this year includes a substantial spending increase. Brown’s ballot initiative this November would raise California’s top personal income-tax rate to 13.3%, the nation’s highest. According to Brown, the tax hike would be temporary, yet it would last seven years. Meanwhile, he claims to be tough on California’s notoriously well-paid and powerful public-employee unions by negotiating a 5% pay cut. But the details reveal a net 1.6% pay cut in exchange for a 5% reduction in work hours.
 
Cities are declaring bankruptcy to escape the pressure of exponentially rising pension and health costs. In contrast to the state, cities have even cut back essential services, including 20% reductions in police and fire personnel.
 
Bankruptcy should allow local governments to renegotiate their bond debt and, perhaps, their retired employees’ pension and health-care costs (that’s up to a bankruptcy judge). The state would be expected to take over essential public services from bankrupt local governments. But the state itself is in dire financial straits; one of the cities’ problems is the sharp curtailment of state funds to localities.
 
Despite these problems, Brown has committed California to a San Francisco-to-Los Angeles high-speed rail boondoggle. To get the cost projections down to $68 billion from a $100 billion estimate, some existing low-speed rail will be used, likely doubling the time it takes to travel from Los Angeles to San Francisco to 5-6 hours. California will most likely be unable to pay for the entire project, leaving little use for the first segment in the sparsely populated Central Valley. And, if the project somehow is completed, it will be a not-so-high-speed rail that will drain badly needed resources from other essential government services for many decades.
 
These sorry episodes reveal some important lessons. One-party government weakens accountability and breeds hubris. The California legislature has been controlled by the Democratic Party for decades, and it takes its cue from its party’s most powerful special interests: public-employee unions, environmentalists, trial lawyers, and teachers’ unions.
 
They have concocted an extremely progressive social experiment: with 12% of the US population, California has more than 30% of its welfare dependents. From the mid-1980’s to 2005, California's population grew by 10 million, while Medicaid recipients soared by seven million; tax filers paying income taxes rose by just 150,000; and the prison population swelled by 115,000.
 
The state income tax is not only uncompetitively high, but the revenues are volatile. In the economic and stock-market upswing, revenues roll in far more rapidly than incomes rise, owing to the extremely progressive income tax (in good years, the top 1% pays about half the state’s income taxes).
 
The legislature spends it as if the elevated revenues will continue forever. Then the inevitable recession and stock-market collapse plunges the state into crisis. The progressive social experiment has gone so severely off-track that the state cannot even dependably provide essential services, from courts to education, for the most needy.
 
Not surprisingly, California’s economy, which used to outperform the rest of the US, now substantially underperforms. The unemployment rate, at 10.8%, is almost one-third higher than the national average, and higher than every other state except Nevada and Rhode Island.
 
California still has great strengths in technology, entertainment, and agriculture. But citizens and politicians alike must agree to target services far more carefully; reform the tax system with lower rates on a broader base of economic activity and people (almost half pay no state income tax); and modernize inefficient state programs to spend less and produce far better outcomes. Not coincidentally, that’s a perfect prescription for bloated, debt-ridden central and subnational governments worldwide.
 
This article was originally published by Project Syndicate. For more from Project Syndicate, visit their new Web site, and follow them on Twitter orFacebook.


Read more: http://www.project-syndicate.org/commentary/california-bad-dreaming#ixzz229PLi4GP

[dario73]

But according to 240 they are educated. Surely such education should have helped the state. According to the stupid left, a diploma means you know what you are doing and automatically makes you smarter than everyone else. Right?

[Soul Crusher]

Facebook Stock Crash Hoses California's Tax Revenue

Henry Blodget|Aug. 1, 2012, 11:08 PM|24,887|33
 

 
Well, the hits from the Facebook stock implosion keep coming.

Now, it's the State of California, which apparently overestimated how much tax revenue it was going to collect from Facebook employees after the IPO.
 
According to Bloomberg's John Erlichman, California is now saying its "tax revenue is at risk" because it assumed it would get $1.9 billion from newly enriched Facebook employees.
 
But now those Facebook employees are only going to get about half as rich as they would have if the stock were still trading at the IPO price.
 
And that means that California--and the Federal government--are likely to collect only about half as much Facebook-related tax revenue as they thought.


Read more: http://www.businessinsider.com/facebook-stock-crash-hoses-californias-tax-revenue-2012-8#ixzz22QEC0ouh

[tu_holmes]

Facebook Stock Crash Hoses California's Tax Revenue

Henry Blodget|Aug. 1, 2012, 11:08 PM|24,887|33
 

 
Well, the hits from the Facebook stock implosion keep coming.

Now, it's the State of California, which apparently overestimated how much tax revenue it was going to collect from Facebook employees after the IPO.
 
According to Bloomberg's John Erlichman, California is now saying its "tax revenue is at risk" because it assumed it would get $1.9 billion from newly enriched Facebook employees.
 
But now those Facebook employees are only going to get about half as rich as they would have if the stock were still trading at the IPO price.
 
And that means that California--and the Federal government--are likely to collect only about half as much Facebook-related tax revenue as they thought.


Read more: http://www.businessinsider.com/facebook-stock-crash-hoses-californias-tax-revenue-2012-8#ixzz22QEC0ouh

That's life... Once all of the employees sell their stock on the 16th of August, it will crash and burn!

[Soul Crusher]

That's life... Once all of the employees sell their stock on the 16th of August, it will crash and burn!

The libs in the legislature and the governor made spending committments based on those anticipated revenues. 

[Soul Crusher]

Bankrupt city paying $204K per year in retirement for police chief who served for … eight months
 Hotair ^ | 08/02/2012 | Ed Morrissey

Posted on Thursday, August 02, 2012 12:37:15


Want to know how California finds itself in debt at the state level by tens of billions each budget cycle? Why three of their cities have already declared bankruptcy this year, and more may be on the way? Here's a cautionary tale from Stockton, one of the three Golden State cities to shield itself from its creditors this year, where they pay a retired police chief in pension slightly more than half of what the President of the United States makes. That's a fine reward for devoted service of --- eight months?


Stockton, California, Police Chief Tom Morris was supposed to bring stability to law enforcement when he was appointed to the job four years ago.

He lasted eight months and left the now-bankrupt city at age 52 with an annual pension that pays more than $204,000 --- the third of four chiefs who stayed in the position for less than three years and retired with an average of 92 percent of their final salaries.

Stockton, which filed for bankruptcy protection on June 28, is among California cities from the Mexican border to the San Francisco Bay confronting rising pension costs as they contend with growing unemployment and declining property- and sales-tax revenue. The pensions are the consequence of decisions made when stock markets were soaring, technology money flooded the state, and retirement funds were running surpluses.

Actually, it's the consequence of the pension structure itself. California, like most other states, use defined-benefit pensions for their public employees, rather than the defined-contribution plans used by almost everyone in the private sector. The latter either utilizes a 401K plan or something similar, where both employees and employers deposit funds, which get invested over the time of service. When employees retire, they own their own fund and draw off of it for their retirement income, which leaves no overhang of debt for the employer and gives the employee control over the investment strategies used.

The defined-benefit structure, on the other hand, guarantees certain levels of payment regardless of whether the retirement fund has actually performed to that level or whether the employer has made the requisite deposits. The payout levels usually hinge on the average compensation paid during the final three to five years of service. This structure lends itself to all sorts of mischief. People work large amounts of paid overtime to pad the average and boost their retirement checks, for instance. Employers defer plan payments in order to cover other spending, figuring that contemporary tax receipts will cover the eventual costs of retirement; that is why San Diego and San Jose were forced to offer referendums to revise their benefit plans, because those costs ate over 20% of the operating budgets of both cities. Finally, that kind of retirement leads to very perverse outcomes for people who only work a short period of time, and who draw the same kind of pension as those who have worked for decades.

That’s also one of the main problems for San Bernardino, which declared bankruptcy last month:


San Bernardino, a city of 209,000 about 60 miles (100 kilometers) east of Los Angeles, is typical of the phenomenon. Its city council voted July 18 to approve an emergency bankruptcy filing, about six years after the panel unanimously lowered the retirement age for public-safety workers to 50 from 55.

The council acted in August 2006 even though Aon Plc, the city’s risk-management consultant, had warned it that such a change would add millions of dollars to San Bernardino’s long- term pension costs. In the fiscal year that ended in June, pensions consumed 13 percent of the city’s general fund, up from 9 percent in fiscal 2007.

Two of San Bernardino’s former police chiefs receive pensions above the $200K mark. Keith Kilmer actually took another job — as interim police chief in Seal Beach.

[tu_holmes]

The libs in the legislature and the governor made spending committments based on those anticipated revenues. 

Why do you always say "Libs"?

When was the last time that a conservative cut spending? Please tell me when it happened because I haven't seen it.

[Soul Crusher]

Why do you always say "Libs"?

When was the last time that a conservative cut spending? Please tell me when it happened because I haven't seen it.

No such thing as a conservative legislature in Califonication 

[tu_holmes]

No such thing as a conservative legislature in Califonication 

Or most of any government... As a matter of fact, the last time I saw a governor cut spending, it was a Democrat, back in 2003 I think, when Mark Warner of Virginia cut spending across the board by 15%.

[Soul Crusher]

Struggling Calif. cities looking to tax hikes
My Fox Phoenix ^ | 30 July 2012 | Amy Taxin, Hannah Dreier
Posted on Mon Aug 13 2012 14:30:45 GMT-0400 (Eastern Daylight Time) by Lorianne

There's a new twist emerging as some of California's most financially troubled cities look for ways out of their predicaments: They're declaring fiscal emergencies so they can quickly get tax hike initiatives on local November ballots.

Leaders are turning most often to an increase in the local sales tax. But there also are proposals for hikes on utility taxes, parcel taxes and, in the Los Angeles-area city of El Monte, a proposal to tax sugary drinks.

Last month's bankruptcy filing by Stockton, quickly followed by one in Mammoth Lakes and then San Bernardino's sudden declaration of a fiscal emergency and plan to file for bankruptcy drew attention to an increasingly common theme - some communities battered by the economy and unable to control costs now are heading toward insolvency.

El Monte finance director Julio Morales said San Bernardino was a wakeup call. Local officials declared a fiscal emergency last week, clearing the way for a ballot question asking residents to approve a 1 cent-per-ounce tax on sugar-sweetened drinks. Local officials think the tax would bring in up to $7 million per year.

"We don't want to wait like San Bernardino and say, 'We can't make payroll,'" Morales said.

La Mirada, Fairfield and Culver City are among other communities that declared fiscal emergencies this year and placed sales tax increases on their ballots. The Orange County community of Stanton declared a fiscal emergency, got a utility tax question on the June ballot and voters rejected it. Now the city may try again in November.

(Excerpt) Read more at myfoxphoenix.com ...

[Soul Crusher]

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LA Officials Consider Hiring Porn Film Condom Cop
AP) ^ | August 16, 2012 5:12 PM
Posted on August 16, 2012 10:06:44 PM EDT by BenLurkin

Dust off those resumes, the Los Angeles City Council may soon be looking for a condom cop.

Earlier this year the council appointed a committee to study how a newly minted law requiring the use of condoms on some adult film sets could be enforced.

After several meetings between police, representatives of the porn industry and other committee members, the city’s administrative officer issued a 47-page report Wednesday.

Among its recommendations: contracting with a licensed medical professional who would conduct periodic inspections of film productions to make sure condoms are used.

Other proposals include establishing a fee, the amount to be determined, to pay for those inspections.

(Excerpt) Read more at losangeles.cbslocal.com ...

[Soul Crusher]

AP Photo/Ben Margot
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SACRAMENTO, Calif. (AP) -- One of the nation's top credit rating agencies said Friday that it expects more municipal bankruptcies and defaults in California, the nation's largest issuer of municipal bonds.

Moody's Investors Service said in a report that the growing fiscal distress in many California cities was putting bondholders at risk.

The service announced that it will undertake a wide-ranging review of municipal finances in the nation's most populous state because of what it sees as a growing threat of insolvency.

The report has both investors and government leaders worried.

Three California cities - Stockton, San Bernardino and Mammoth Lakes - have filed for bankruptcy so far this year. They are not likely to be the last, Moody's said.

Moody's reports that some cities are turning bankruptcy as a new strategy to take on budget deficits and avoid obligations to bondholders, an emerging dynamic that could have ripple effects throughout the investment community.

The municipal bond market has long been characterized by low default rates and relatively stable finances, Moody's said, but that outlook is beginning to change as bankruptcy becomes a tool for cash-strapped cities.

As a result, the agency will reassess the financial position of all cities in California, which issues about 20 percent of the municipal bond volume nationwide, "to reflect the new fiscal realities and the governmental practices."

The agency also will examine the outlook for municipal bonds in other troubled states, according to Robert Kurtter, managing director of public finance at Moody's.

Moody's would not say which states it will review, though Kurtter mentioned Michigan and Nevada as possibilities. Friday's report noted that cities across the country are in financial distress but said that a greater share of bankruptcies are expected in California.

In California, officials rushed to downplay the report.

"Moody's has an obligation to review changing circumstances, but we would just suggest that their assessment of the framework and ground activities is perhaps exaggerated," said Chris McKenzie, executive director of the League of California Cities.

The state treasurer's office also cautioned against overacting to three bankruptcies among California's 482 cities.

"No city's going to blithely skip into bankruptcy court to avoid its obligations," said treasurer's office spokesman Tom Dresslar, who called the report "a little hyperbolic."

More than 10 percent of California cities have declared fiscal crises, according to the Moody's, with the most troubled areas lying inland in the middle of the state and east of the Los Angeles area.

Kurtter said the declarations of emergency were "a reflection of the broader fiscal stress in the state."

Moody's floated the idea Friday of an across-the-board ratings adjustment for California cities, a move McKenzie warned "would have a terrible impact on taxpayers."

The agency will consider ratings downgrades for embattled counties, school districts and special districts.

The report highlighted growing doubts in some corners about whether cash-strapped cities are making good-faith efforts to pay their debts.

"Credit analysis is based on the ability to pay and the willingness to pay," said Paul Rosenstiel, Principal at DeLaRosa & Co., a San Francisco-based municipal bond investment-banking firm.

Investors have historically assumed that cities are willing to pay their debts because they want continued access to the bond market, Rosenstiel said.

Now, some are not so sure.

"What is being considered is whether the willingness to pay is something that needs to be factored in more than in the past - and if so, how would you measure it?" he said.

Lower bond ratings would increase borrowing costs for cities at a time when many already are struggling financially because of a steep drop in tax revenue. Because of that, Friday's report is raising alarms for city leaders who fear that it could trigger a crisis of confidence that would hinder their ability to borrow for needed projects.

"Every city in the state is looking on with some concern," said Dave Vossbrink, spokesman for the city of San Jose. "Governments of all kinds borrow money, usually to build infrastructure that lasts a long time. It's like getting a mortgage to build roads, a sewage plant, whatever it might be."

San Jose has shuttered libraries and laid off police officers to cut costs, and residents voted this summer to cut the pension benefits for city workers. But while the city is taking steps to reassure investors of its fiscal health, there is frustratingly little it can do to control larger fears about the municipal bond market.

"We know that even though we have a good reputation for our own affairs, if you are in a marketplace where some of your counterparts may be in a less desirable position, then it could have some bearing," Vossbrink said.

Moody's said it will review all California cities in the coming weeks and conduct in-depth reviews of stressed cities in September, with reports issued as the reviews are completed.

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