Vallejo is a poster-child for what is wrong in California’s state and local government finance system. The city of 117,000 in northern California had been flirting with bankruptcy this entire fiscal year, and was finally forced to declare itself bankrupt after months of failed contract negotiations with the city’s two largest employee unions-police and firefighters.
The city was facing a projected $16 million deficit next year on a budget of some $80 million and had already used up its reserves and almost all possible accounting gimmicks just to get to that point. Even though the city undertook major service cuts last year and this year, there was still no room to accommodate the reduction in revenues that this year’s real estate collapse has brought on. And it is not just the economy. How can this be you might ask?
The problem lies in the breakdown of accountability at the local government level. Basically, because people don’t understand the public finance system and how collective bargaining interacts with it, it is difficult for them to demand responsible budgeting from their public officials. The complexity and confused meaning of many public finance concepts make it hard for the public to truly understand what is happening within their city’s budget and, as a consequence, makes it hard to know against which standard they should hold their elected officials accountable.
In Vallejo’s case, the city’s budget is dominated by police and fire expenditures which combined total 74 percent of the city budget. Vallejo has one of the highest salary structures for public safety in the state and an overtime system that has lead to some employees making more than $200,000 in total pay. With such a generous pay scale, one would expect some significant flexibility when things get tough. And there has been some on their part as they deferred some already won raises until a later time.
Voters in Vallejo are legitimately concerned. They see dramatic declines in city service levels in response to changes in the economy at the same time they see the stories of not only some 292 city employees receiving salaries in excess of $100,000, but even a departing employee who receives a paycheck totaling $435,638. To top it off, this same employee was rehired by the city to be their spokeswoman for the city’s bankruptcy.
Average citizens are asking themselves why their employers don’t print big checks to their employees when they leave the company and the answer is obvious-because it doesn’t make sense. How and why does this happen in the public sector? The answer is-because no one is looking closely at what happens. The system is so confounded and convoluted that few understand the rules, let alone the outcomes. And lest anyone figure this is just Bay Area hijinks, LA’s employee union have just proposed their solution to the City’s financial problems: pay them to retire. The problem is not the unions, but rather the rules that we have allowed to be put into place. It is time for a common sense review of the ways that our public finance system stacks the deck at the local level. Vallejo’s troubles are a great laboratory for seeing some of these issues first-hand.