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This is why cities go bankrupt

Posting in Cities

The fun thing about the budgeting process: it always comes down to simple math. Spend more than you make, and you eat away your savings until there are none left, whether you're an individual or corporation or -- in today's example -- a municipality.

Reuters has a special report on San Bernardino, Calif. that details how the city's fire and police departments built up their benefits and pensions until it drove the city into the ground. Reporters Tim Reid, Cezary Podkul and Ryan McNeill call it "a pension-fueled financial time-bomb that finally exploded."

They write:

Unions poured money into city council elections, and the city council poured money into union pay and pensions. The California Public Employees' Retirement System (Calpers), which manages pension plans for San Bernardino and many other cities, encouraged ever-sweeter benefits. Investment bankers sold clever bond deals to pay for them. Meanwhile, state law made it impossible to raise local property taxes and difficult to boost any other kind.

What's more: a third of the city's 210,000 people live below the poverty line, making San Bernardino the poorest city of its size in the state of California.

We write a lot about the innovative things that cities accomplish here on SmartPlanet, but this is the flip side of the coin. Few people think emergency services personnel don't deserve to be paid well for their efforts, but if it comes at the expense of the municipality they're supposed to be serving, it becomes a difficult argument to make.

How a vicious circle of self-interest sank a California city [Reuters]

Photo: scotty74_2000/Flickr

— By on November 15, 2012, 11:50 PM PST

Andrew Nusca

Editor Emeritus

Andrew Nusca is editor of SmartPlanet and an associate editor for ZDNet. Previously, he worked at Money, Men's Vogue and Popular Mechanics magazines. He holds degrees from the Columbia University Graduate School of Journalism and New York University. He is based in New York but resides in Philadelphia. Follow him on Twitter. Disclosure