News Briefing

A lot of interesting items in the news, including a lot of local budget news -- despite the fact that August is usually the least active time of the year for budget talk -- as most of us just approved our budgets. Typically, it takes a couple of months before budgets start going awry -- but not during the great recession. Here's a news sampling:

Half Moon Bay could be the first city in recent memory to "disincorporate". Debt payments on a $15 million lawsuit and declining revenues make this doomsday scenario a possibility. Read the entire story here.

San Jose's firefighters refused an opportunity to take a pay cut and get jobs back (click here). The city's budget gap is over $100 million, partly due to the fact that total compensation for public safety has more than doubled over the past decade.

Anti-tax advocates aren't happy about Tracy's proposed sales tax increase. Read the opinion piece here.

Little Solano Beach is the first city in San Diego County to get all of their employee groups to agree to pay for 100 percent of their PERS contribution (click here).

Hundreds of layoffs and a huge reduction in services has only reduced Fresno's budget gap down to $12 million (click here).

Just as in Stockton, the Santa Barbara PD has hired a consultant to try and find money in the city's upside budget for police salaries. The union apparently hasn't received the answers they wanted to hear in the past as this is the third different consultant they've had look at the books -- Stockton has only hired two of these guys so far. (click here)

In Long Beach, more than 200 layoffs are needed to stem the ongoing budget crisis. Final numbers are dependent on labor negotiations. (click here)

I have at least 100 more of these articles I could post from just the past week. I think these give you a good idea that the current recession is far reaching and impacting cities of every shape and size. All of us have seen decreasing revenues and increasing labor costs --- not a recipe for success -- but also not something anyone expected -- particularly of this magnitude. I find it amazing how many articles seem to think that the budget problems are a local, and not national problem.

Many groups seem to want to pin the budget deficit on specific decisions made by their City Council. In reality, this budget crisis occurred in both fiscally conservative and fiscally aggressive cities.

You have to make certain assumptions when putting together a budget. You can't assume absolute worse case or best case when it comes to projecting costs and revenues. No one could have predicted the quickness and severity of the financial/economic meltdown -- it was unprecedented in all of our professional lifetimes. To claim that our city fathers could have prepared for the status quo is unrealistic.

However, it did happen and now we just have to do our best. That means cutting costs wherever possible without jeopardizing city services. That is all any of us are doing -- and I'm confident that we will have a leaner more efficient government at the end of the day - -but probably one that is very different than the one we experienced over the past 50 years.

City Leaders Support Transparency and Accountability Legislation

The following is a press release from the League of California Cities detailing the latest hypocrisy from the state legislature:

City leaders across the state are publishing city council and senior staff compensation information on websites. Additionally, the League of California Cities is supporting the enactment of SB 501 (Correa) and AB 2064 (Huber) to require the publication of such information by local and state agencies. In other words, we're putting our money where our mouth is: we're supporting strong reforms to ensure residents have the information they need on local official compensation information. We continue to believe that transparency is the key to accountability in the wake of the Bell scandal.

Unfortunately, the State Legislature doesn't share in our belief that this transparency should apply to officials at every level of government. In fact, today reports emerged of efforts by leaders in the State Senate to hold up AB 2064 because it would apply to legislative salaries. "We shouldn't be asking local government to do something we are not willing to do," said Assembly Member Alyson Huber (D-El Dorado) in a Los Angeles Times article published today.

Less than two weeks ago, Senate President Pro Tempore Steinberg proudly stood with Assembly Speaker John Peréz and a handful of lawmakers to introduce bills addressing what happened in Bell, including one by Huber that applies the transparency requirements to both state and local government. The Senate leader's about-face has been reported by a number of news organizations and speaks for itself.

In a related development, regrettably the League today was forced to oppose, unless amended, AB 1955 (De La Torre) because AB 1955 runs afoul of at least two constitutional provisions concerning charter cities and the separation of powers. In our letter of opposition, the League stressed our desire to work with the author and our support for reforms centered around transparency and accountability.

Severely Flawed Municipal Bankruptcy Bill

More on our friends in Sacramento:

Legislature That Has No Ability to Manage its Fiscal Affairs Should Not Interfere With Local Fiscal Authority:

With the Legislature on the verge of passing AB 155 (Mendoza), city officials should gear up to urge Gov. Arnold Schwarzenegger to veto this bill which undermines the ability of local governments to manage financial resources and make decisions in the best long-term interest of cities. AB 155 is so terrible that its defeat has been a top League priority throughout 2010. The bill spent much of the summer on the inactive file until being brought back to life late last week after being amended.

This bill is another example of Sacramento lawmakers once again imposing more hurdles on the efficient delivery of local services after repeatedly taking city resources to close the state’s deficit. It is interesting to note that the California Professional Firefighters, main sponsors of AB 155, is also the primary opposition to Proposition 22, the League-backed measure which would close loopholes that have enabled the state to take or borrow local tax dollars dedicated to fund vital services like 9-1-1, police and fire protection as well as take or divert gas taxes which voters have dedicated to local road and transportation needs.

AB 155 would impose unreasonable restrictions on local government finance and authority. More than 200 local agencies oppose AB 155. While this measure is pending in the Legislature, city officials should ask their Legislators for a “no” vote. The League has also prepared a sample veto letter cities can use to write the Governor to urge him to veto AB 155. The letter has been posted on the League’s website. To access the letter, visit the League's website and type in “AB 155” to the search function.

AB 155 is a Solution in Search of a Problem
AB 155 is bad policy that would make a cash-strapped city even more fiscally vulnerable should it find itself in a position where bankruptcy protection is its only option. The bottom line is that AB 155 offers nothing to cities in fiscal distress except costly delays and the promise of litigation.

Bankruptcy is an option of last resort and has only been used three times by a local agency in California. What AB 155 would do, if signed into law, is require local agencies seeking bankruptcy protection to first be reviewed by an obscure appointed commission or the State Auditor. Neither of these agencies has expertise in municipal finance or bankruptcy.

At its foundation, AB 155 undermines the benefits of federal bankruptcy protection. It renders the automatic stay of financial obligations meaningless, because this bill delays the process of filing a petition with the court. Cities will no longer have the immediate “breathing space” necessary to formulate a debt readjustment plan. Most importantly, without immediate access to the bankruptcy court the state is putting local services at risk. The state could be responsible for providing federal-or state-mandated services and a community’s debts due to these state-imposed barriers and delays. Is the state prepared to take on that fiscal responsibility?

Editorials Blast AB 155
The bill’s flaws are so apparent that countless newspapers across California have run multiple editorials against it. Below is a sample of some of the editorial writing against AB 155.

Contra Costa Times, Aug. 20, 2010

“Bad municipal bankruptcy bill still alive”

“The reality is that, with or without amendments, [AB 155] is a bad bill – and no amount of lipstick will change that…What the labor unions want is more ability to delay, to leverage; more ability to force local governments to take on long-term debt to meet short-term obligations, to protect unaffordable salaries and benefits even if it means forcing future generations to pay for it…”

The Long Beach Press-Telegram, April 19, 2010

“A bad municipal bankruptcy bill”

“The unions are out to protect rich labor contracts approved in better days that cities, counties and special districts can no longer afford…Passage of AB 155 is a key legislative goal this year the public employee unions, especially firefighters, who have been Steinberg’s most loyal supporters.”

The Daily Republic, Aug. 23, 2010

“State Senate tinkers with proposed city bankruptcy law”

“The state is in such a financial mess, that having the state auditor take a look at the city of Fairfield's finances just doesn't make sense to me,' [Fairfield Mayor Harry Price] said today from Chicago. 'I think cities like Fairfield are much better able to evaluate their finances than the state.’”

San Jose Mercury News, Aug. 25, 2010

“Why is Legislature wasting its time on AB 155?”

“Gov. Arnold Schwarzenegger must veto this bill. It is terrible public policy.”

The Vacaville Reporter, Aug. 25, 2010

“AB 155 – still a bad idea”

“If the state Legislature really wants to help steer California's cities, counties and agencies away from bankruptcy, it should mind its first order of business and get the budget passed – without begging, borrowing or stealing money from municipalities to do it.”

More Bell Fallout

The City of Bell scandal will likely be with us for a while. The Reason Foundation has been one of the sharpest critics of local government salaries over the past couple of years -- and I've often provided links to their stories. For those of you who have read the articles, the opinion piece at the following link (click here) shouldn't surprise any of you.

Here's an excerpt from the column:
The Bell scandal is a microcosm of a new class struggle—in California and across the nation—between taxpayers and government employees. Government employees have become the new privileged class.

The argument of public workers has always been that they do not earn as much in salary as comparable private-sector workers, so governments must make up for this inequity through increased job security and greater pension benefits. If this was true a generation or two ago, it certainly is not today. The most recent Bureau of Labor Statistics report on employee compensation revealed that, as of March 2010, state and local government workers earn, on average, nearly 44 percent more than do private-sector workers, including 34 percent higher salaries and wages and over 66 percent greater benefits.

CEQA Alarm Bell Rang In Corrupt City Years Ago

For those of us who worked in southern California, nothing that has been reported on Bell or Vernon (or the other cities that haven't covered yet) comes as a surprise. Many of us have been complaining for decades about the corruption in these cities -- and while the newspapers covered the scandals from time to time -- it took a million dollar salary for the media to really show some vigilance. The following entry from the California Planning and Development Report blog is a perfect example of the lack of surprise from any of us in the industry.


Submitted by Paul Shigley on 11 August 2010 - 2:41pm
Los Angeles County
Paul Shigley

In early 2009, I wrote a story about the City of Bell’s plan to lease 15 acres it had recently purchased to Burlington Northern Santa Fe Railroad for use as a truck yard. An environmental organization had successfully sued to block the project because Bell did not complete an environmental review.

As you no doubt know, Bell has been in the news lately for gross levels of corruption at the elected and staff level. Now, the Los Angeles Times has revealed that Bell is unable to pay back a $35 million debt that was issued for the railroad truck yard project. Standard & Poor’s has placed Bell on a credit watch list.

Back in 2007, the Bell Public Financing Authority – an alter ego of the city – issued $35 million in bonds for the ostensible purpose of purchasing 15 acres of former military property near the Long Beach Freeway and funding capital improvements related to the planned truck yard project. The city’s stated plan was to pay off the bonds no later than November of this year by issuing new debt secured with monthly lease payments from Burlington Northern Santa Fe. However, the city never received any lease payments because the project died.

I based much of my 2009 story on public documents. No one from Bell – not the city manager, the city attorney or the mayor – would talk to me. The whole deal smelled bad, but I admit I did not recognize just how far out of control things were in Bell. The city had bought 15 acres of industrial land, worked out a lease option with the railroad and began clearing buildings from the site all without environmental review. The city had not claimed the project was exempt from the California Environmental Quality Act or adopted some perfunctory negative declaration. Rather, the city simply ignored CEQA altogether. It suggests that the city was not accustomed to playing by the rules. It also suggests that the city was not accustomed to having anyone look over its shoulder.

A 2008 Los Angeles Superior Court ruling for the environmental justice organization put an end to the railroad truck yard project. In the two years since, Bell’s infamous $1.5 million-per-year city manager, Robert Rizzo, apparently did not find a different use for the property or figure out a way to pay back the $35 million debt.

I have to assume that the news from Bell will only get worse as investigators dig deeper into the city’s finances and other deals that Rizzo put together.

– Paul Shigley

$50 Million Man overshadowed by Bell scandal

While the media has been putting a lot of focus on the shameless behavior exhibited by public officials in Bell -- the far more wide reaching scandal at CalPERS has been relegated to the shadows.

The August 15 Sacramento Bee (click here) did a great expose on Alfred Villalobos, the former CalPERS board member who profited mightily from getting his clients business from PERS.

Here is an excerpt from the story:
Villalobos' work has become an influence-peddling scandal for CalPERS. State and federal officials are investigating, and CalPERS has commissioned its own examination of how one man could allegedly corrupt a $200 billion institution whose governing board includes the state treasurer and controller.

Attorney General Jerry Brown says in a lawsuit that Villalobos bribed his way to success, delivering job offers, junkets and other goodies to three top officials. Villalobos has angrily denied any wrongdoing, and no criminal charges have been filed.

Starting a decade ago, the CalPERS board delegated much of the responsibility for investment decisions to its staff. That meant Villalobos could operate more quietly, without having to engage in the messy and sometimes public process of persuading the 13-person CalPERS board.

A Bee investigation shows how Villalobos was able to secure billions of dollars' worth of investments with minimal oversight. He was aided by a crucial policy shift at CalPERS – a change prompted in part by criticism over his lobbying on previous deals.

The full story is worth the read. The behavior of the PERS board and staff will shock many of you.

The Privilege and Responsibility of Public Service

The following was sent to every newspaper in California. Many will likely print this opinion piece this weekend.

What is a City Manager?

By Bill Garrett
Executive Director of the California City Management Foundation

Recent media scrutiny of city managers—or, more specifically, their compensation—has reached a fever pitch in California and across the country. The city management and governmental compensation abuses uncovered last month in the small Los Angeles suburb of Bell are deplorable and warrant a full investigation. Such trespasses are rare in a profession known for transparency and populated by talented and dedicated individuals.

Without the benefit of knowing the full extent of a city manager’s responsibilities, the public has been swept up not in a debate but a tempest of suspicion fueled partly by the very real pain of the nation’s current recession. Which makes this a good time to address the underlying question: What is the role of a city manager?

City managers are executive-level talent tasked with maintaining and improving infrastructure and ensuring the delivery of services that foster citizens’ comfort andsafety, including police, fire, water, sewer and the maintenance of streets and parks.

These professionals coordinate city planning and the multitude of visible and invisible moving parts necessary to sustain a vibrant community; ironically, it is often only when something goes wrong that their role is noticed. But because his or her responsibilities impact every resident every day, it’s important to acknowledge the efforts of the city manager even when things are going well in your city.

City managers do not fall into their positions by happenstance; most have a sincere passion for public service and want to make a difference by assisting the development of healthy communities. However, it takes more than the desire to grow a city; it requires a keen and constant sense of logistics and a thorough knowledge of government, public administration and finance. Worker unionization requires the city manager to be a skilled labor and contract negotiator, while the demand of citizens to be heard and kept informed necessitates clear communication and leadership skills.

It goes without saying that all executives are not created equal, and the administrative talent pool from which city managers are drawn is limited. As a result, hundreds of California cities have clearly and reasonably prioritized investing in highly qualified managers with the expectation of yielding long-term, positive results.

Meanwhile, many city managers are accepting reduced compensation voluntarily for the greater good of their communities.

Comprised of city managers across the state, the California City Management Foundation cultivates these professionals by extending support and offering best practice resources to its membership. It is CCMF’s mission to foster council-manager relations and the well-being of city managers in order to ensure stable and successful communities. City managers see themselves on the council’s team—those elected set the direction and establish policy and the city manager executes the tasks.

The established leadership structure involves a well-tested system of checks and balances whereby voters elect their leaders, who in turn hire the city manager and decide his or her salary based on parameters that vary from city to city. Open meetings and other opportunities for public participation are also essential parts of the system.

CCMF, in partnership with the League of California Cities and the California affiliate of the International City/County Management Association (ICMA), is committed to transparency in hiring practices and compensation packages while adhering to the city managers’ code of ethics developed by ICMA. (ICMA additionally has affirmed that the standard practice for establishing the compensation of local government managers is fair, reasonable, transparent and based on comparable public salaries regionally and nationally.)

Of course, cities should weigh proposed compensation cuts against competitiveness when hiring managers—being mindful that such action may attract less-qualified talent and possibly lead to systemic breakdowns. That said, in these times of financial duress, it is more important than ever that city government and its employees be held accountable. Our fellow tax-paying citizens, who continue to sacrifice as they either search for work or work much harder just to make ends meet, deserve nothing less.

Bill Garrett, formerly a city manager serving the Southern California cities of El Cajon and Corona, is executive director of the California City Management Foundation(www.cacitymanagers.org). The organization is comprised of more than 200 active and
retired city managers statewide.