For California Municipalities, ‘a Desperate Situation Sitting on a Powderkeg;’ and a Little Hope of State Leadership

November 5, 2012 – In The News
Debt Wire

With the cities of Stockton and San Bernardino testing the Chapter 9 waters, the city of Vellejo, which emerged a little over a year ago, is often mentioned as a model for how the current cases may turn out. But Vallejo is stuck with unsustainable pension costs even after restructuring, and there’s no sign of state leadership that may help municipalities in the futures, according to several sources.

Michael Sweet, partner at Fox Rothschild, said some California municipalities may start to consider restructuring the way employees are compensated. “Folks need to face reality and the fact that the benefit packages that local governments have historically given out are not sustainable,” he said.

Sweet said he was hopeful that Proposition 30, the ballot initiative which would temporarily increase the sales and use tax by one-quarter cent, and the personal income tax on earnings over USD 250,000, would pass. If it were to fail, he said, the cuts that may ensue would be “extraordinary.”