Special Report: How a Vicious Circle of Self-interest Sank a California City

November 13, 2012 – In The News
Reuters Business & Financial News

The city of San Bernardino filed for bankruptcy protection in August citing fraudulent accounting as the root of their problems. After a closer look, the city’s decades-long journey from prosperous, middle-class community to bankrupt , crime-ridden town is not unlike many of those in municipalities around California.

Among the contributing factors that lead to bankruptcy for the Los Angeles suburb, San Bernardino succumbed to a vicious circle of self-interests among city workers, local politicians and state pension overseers. Cumulatively, the city build a pension-fueled financial time-bomb. While a third of the city’s 210,000 people live below the poverty line, making it the poorest city of its size in California, forty-six retired city employees receive more than $100,000 a year in pensions.

The pension agency, Calpers, believes the benefits are carved in stone for San Bernardino, and cutting pension costs or benefits is not an option. Calpers argues that the pension is in place on the day a worker is hired and that person can never be reduced in value under any circumstances, including municipal bankruptcy.

“Calpers is the 800-pound gorilla in the room,” said Michael Sweet. “No one has yet taken on Calpers. This is going to be a huge fight, and it’s going to be Calpers versus Wall Street.”