Wednesday, March 23, 2011

Just the facts, m'am

Facts we already know:
  • San Diego has a multi-billion-dollar debt, accumulated through years of “creative” pension practices like underfunding and retroactive payouts. Think of it as a 30-year mortgage with double-digit interest rates and a principle that grows instead of shrinks. Despite increased payments we keep falling behind. It's a structural deficit.
  • We've also got an annual budget deficit.  Think of it as the unpaid amount on a credit card statement for a year’s worth of city services.  
  • Payments into our structural deficit bite off bigger and bigger chunks of our city's revenues, making it impossible for the Mayor and City Council to pay off our annual “credit card” to balance the budget.  So we resort to drastic cut and slash options -- last year, this year, next year, and for decades to come.
  • It's a touchy secret: the city has exceeded its ability to pay down our huge debt while also keeping the city running at an acceptable level.
Birds do it…bees do it…let’s do it…let's throw caution to the winds and indulge in a lightweight Q&A on the facts of life about municipal bankruptcy:

1) Ugh, bankruptcy...who would do such a thing? A city in obvious financial distress-- ours, for example.  Filing under Chapter 9 of the federal Bankruptcy Code would provide San Diego with a time-out to develop and negotiate a plan for adjusting (reorganizing) our city’s debilitating debt, while protecting us from lawsuits and related actions.
2) Who makes the first move?  It’s a voluntary act, so the City Council could pass a resolution (with, one would hope, the Mayor’s blessings) acknowledging our city’s insolvency and intention to file a petition for bankruptcy protection.
3) Who else gets in on the act?  The city’s petition goes to the chief judge of the 9th circuit appeals court, who then appoints a federal bankruptcy judge to take on the case. The point of doing it this way is to get an experienced, qualified, and politically-independent judge to handle the proceedings.  Plus high quality, problem-solving bankruptcy lawyers and accountants to work on behalf of the city.
4) Can the bankruptcy court have its way with us?  No, the rules are strict: Help clear up our financial mess but hands-off our private business!  The bankruptcy judge:

* cannot interfere with the city’s day-to-day operations
* cannot take over the political powers of the Council or Mayor
* cannot order the city to sell city property or assets
* cannot interfere with city revenues or governmental affairs
* cannot appoint a receiver or trustee to take over city business
* cannot control the city’s spending decisions or force new taxes
* cannot tell the city whom to hire as experts or consultants

  5) Bankruptcy costs big money, right?  Yes, in the short run. This quick, responsible, and effective legal process to reduce the massive debt that incapacitates our city is expensive.
          No, in the long run. We would soon stop flushing wasted millions down the city's broken, running toilets.
6) Then who does what?  Everything gets put on the table – including open disclosure of the city’s financial data. (This would force the hand of city officials, still withholding full financial disclosure in our overdue city audit – a troubling throwback to the bad old days of fraudulent financial cover-ups in City Hall.)
Everyone – including impacted stakeholders like banks, bondholders, creditors, public employees, residents -- has a place at the table to address disputes and find a comprehensive solution.
7) Who writes the recovery plan?  It’s the city’s responsibility to negotiate and file a recovery plan (with the help of financial advisors and bond counsel) for adjusting the city’s debt.  The plan is delivered to the bankruptcy judge, who responds to dissenting challenges and has the last word on confirming – if the job is done right -- an optimal financial recovery plan for the city of San Diego.
          To allay fears of disrupting city access to the public market, the city has the power to affirm its obligations to bondholders and designated others.
8) Who wants you to think that Chapter 9 bankruptcy is a dirty word?  Believe it or not, there are influential people in San Diego who make out like bandits despite (due to?) the city’s chaotic responses to its financial distress.  Name a few, you say?  This won’t make me any new friends but here goes:

* Upper echelon politicians who draw or look forward to generous pensions
* High-stakes investment advisors, hedge fund operators, banks, lawyers
* Other interests also luxuriating in vast pools of pension funds
* Panicked politicians worried about their future careers
* Ambitious politicians manipulating fiscal chaos to advance their agendas
* City officials adept at tapping into slush funds to balance budgets
* Short-sighted people refusing to give up anything – the future be damned.

Once more for the road: Municipal bankruptcy is a way for cities to reorganize their over-the-top debt.  It’s a respectable option we can pursue to restore San Diego’s fiscal health.  It merits frank discussion and evaluation so we can decide whether reorganization of our debt via Chapter 9 municipal bankruptcy is in the city’s best interest
Let's see how far we get once we start talking dirty.

Wednesday, March 16, 2011

Our own private earth-shaker

In the face of cataclysmic events on the other side of the globe, we feel like helpless onlookers.  By contrast, San Diego’s financial crisis is small potatoes.  But keep this in mind: here at home we’re not just onlookers.  And we’re far from helpless about problems in our own backyard.  We have the ability to go mano-a-mano with San Diego’s political and fiscal affairs and shape their outcome.

Our own private earth-shaker.  It wasn’t so long ago that talking about the big C was a no-no in polite circles.  Nowadays in San Diego the forbidden word is the big B -- BANKRUPTCY.  Dare to whisper it and poof! you’re a pariah – ridiculed and banished from every movers-and-shakers club in town. Don't even think about it, say the big bosses. 

Bankruptcy is not a dirty word.  In fact, it could prove to be (like our sea, sand, and sun) a blessing.  One thing’s for sure: San Diego’s financial predicament now hangs like an albatross on private and public interests, alike.  It’s time for deniers, delayers, deceivers, politicians, and political hopefuls to back off.  What do we need? A no-holds-barred public conversation about municipal bankruptcy.  When do we need it? Now.

It's not the remedy that's dangerous, it's the disease.  And the clock is ticking. Within the next couple of months the Mayor and City Council will slash city spending by upward of $75M (give or take millions), for the purpose of balancing our annual budget for the fiscal year 2012. 
City officials will rehash a now-familiar litany of cost-cutting measures: raising fees, axing employee salaries and pensions, selling off city property, juggling numbers, and reducing services to the bone.  This year's hatchet job comes on the heels of two years of bloodletting that already cut more than $200M worth of public services and jobs in the process of balancing previous budgets.

It’s a vampire saga.  Apparently, city officials don't want to alarm the public by disclosing their little secret -- that a multi-billion dollar monster has first dibs on the city's bankbook, aka General Fund, and that balancing the budget does not make it go away.  Neither does fiddling with new kinds of pension plans.  Nor giving away city services to private corporations.
Specifically, we've got a  $3.5B debt (give or take a few billions) that the city owes in back payments to our pension system. Each year, city officials quietly transfer mega-millions from the General Fund into the pension pot.  This year’s installment is $232M, next year’s will be $255M, then $300M, and in fifteen years the projected payment is $500M.

Problem is, there's not enough in our General Fund to keep paying off such a massive pension deficit and also cover basic city needs.  The Mayor said public safety (fire, police) will be sacrificed.  Ditto for neighborhood parks and libraries.  You know the miserable state of our streets.  And we still haven't seen that long-overdue city audit.  (Is there not enough money to pay for getting it done? Is the money-juggling too unspeakable for  public or bond market consumption?)

It boils down to this: our city is insolvent.  Even if we mash ourselves flat enough to produce a budget this time, we won't be able to pay our bills a month afterwards.  That's the definition of insolvency.
To save itself from further harm and degradation, an insolvent city can petition for bankruptcy.  There's not a single corporate lawyer with any standing or integrity who would recommend otherwise for his/her corporate client when confronting financials like ours.  San Diego is a municipal corporation.
Bankruptcy is a rational and practical process that can produce positive and humane results.  Is bankruptcy is the right choice for San Diego?  We need energetic leaders with brains and guts to step forward and get the public conversation going.  Any takers?
Coming next: the ABCs of municipal bankruptcy -- who, what, when, why, how. 

Thursday, March 10, 2011

It's only money -- or is it?

I’ve been chastised for being too hard on San Diego’s elite.  I suggested that they take care of business by adhering to a code of silence.  (By the way, if you have a better term than “elite” to describe the wealthy, powerful, and politically influential people in our city, please let me know.)  I suggested that the elites are not stepping up to the plate on the issue of the city's fiscal crisis.

But whoops.  I see in yesterday’s newspaper that a task force of select local business leaders let the cat out of the bag and declared that San Diego has a fiscal crisis.  The “Citizen’s Fiscal Sustainability Task Force” report states that the city’s upcoming budget deficit is a deafening $130M.  Then their report  hurls some tough-sounding recommendations in the direction of the City Council that dazzle for a minute before  ricocheting like the rat-a-tat-tat of a fizzling firecracker.

The stated goal of the task force is commendable, no different from yours or mine. They, like us, want to “return San Diego to a position of financial stability.”  But kumbaya comes to a screeching halt with their list of “tradeoffs required to accomplish this critical task.”
What’s on this list?  Pretty much what you'd predict, given the business-oriented identity of this task force: job elimination; wage cuts; substituting volunteers for paid city workers; transfer of public services like trash collection and the city library system to private entrepreneurs; reducing the protective role of the civil service system…

Sadly, there are no real surprises here.  Over the years, similar faces on similar task forces promoted similar solutions: tighten the screws on public employees, loosen regulations, privatize public services.
There's no reliable evidence that these measures are effective in saving the city money, so why target them?  Whose interests would be served by proposals to sell off public assets, privatize municipal facilities, outsource city services, and reduce oversight?  Yes, it's all about money, but who are the winners in this kind of setup? 

It could have been different this time.  Only a year and a half ago, the Citizen’s Fiscal Sustainability Task Force candidly expressed the point of view that municipal bankruptcy might be option as we try to resolve the city’s fiscal crisis.
The San Diego County Grand Jury was saying the same thing.  The San Diego Taxpayers Association entertained the subject at their municipal bankruptcy forum.  As did the League of Women Voters.  The word was getting out that municipal bankruptcy might be our only chance to get everyone to negotiate at the same table at the same time without dismantling the city in the process.
Then someone pulled the plug.

I stick to my guns: there IS a gentleman’s agreement among San Diego’s elite to remain mute. Read the latest task force report -- not a word about the bankruptcy option.  Not even a footnote explaining where, why, or how it disappeared.  Why isn’t it on the table for consideration, along with other remedies?  
Somebody’s fingers got rapped.  By whom?  Silence…

Monday, March 7, 2011

When the sun shines in San Diego

Let's start on a positive note: when the sun shines in San Diego life feels beautiful.  It’s a fact, a gift of nature, our claim to fame.  We’re a mecca for visitors from far and wide.  Even down-home residents experience a sense of awe over our flawless skies/breezes/sunsets…each time feels like the first time.  It's a blessing.  But it’s not the whole picture.

Here's an equally striking fact about our city: San Diego is flat broke.  Natural blessings notwithstanding, our city cannot cover it’s annual expenses, its normal, everyday bills -- not without jacked-up fees, sharply-reduced city services, and whichever additional measures the Mayor can come up with to save a million here, a million there.

How broke are we?  The answer depends on who's running the numbers. The Mayor admits to being $46.5 million in the red for the next fiscal year...okay, make it $57M.  Hold on, says the city’s budget analyst, the deficit is more like $96M.  Now wait a sec, says a stickler-for-details city council member, I’m calling it at $176M.
The public is obviously not getting the whole story.

What we do know for certain is that San Diego’s finances are in worse shape than ever before.  Despite worker layoffs, neglected streets, fire station brownouts, burnt-out street lights, repeated cuts in city services (they call it belt-tightening) the city’s financial sinkhole has grown wider and deeper.
What we also know is that we're required by law to pass a balanced budget for fiscal year 2012 and the deadline for getting it done is June.
What we don't know is whether there are enough notches left on the city’s belt to squeeze this one out.  And what we don't know is what kind of starvation measures will be required when the next fiscal year roles around.  Or the one after. And so on.
This should begin to give you an idea of how broke we are.

At this point you might ask: If we’re in such terrible financial straits, surely the Mayor and other city leaders have a comprehensive plan to tackle the financial collapse of our city, right?  The answer is NO.
This astounding fact warrants repeating: there is NO comprehensive plan to address our city's crippling, intractable, ballooning, long-range financial crisis. 
Instead of an honest plan, the city’s budget gets massaged and manipulated through money juggling and shell games.  It's a San Diego tradition that city officials persist in perpetuating, whether or not it brings the house down.   
Tradition is a more respectable word than incompetence. Or for that matter, corruption....

Another quirky tradition among San Diego's elite is a gentleman's agreement to remain mute.  It appears to be a unique San Diego phenomenon.
Our city has a wealth of politically-savvy law firms and bankers. There are business-savvy entrepreneurs, in and out of the Chamber of Commerce. We've got academically-savvy public policy experts, business schools, and institutes. And experienced retired politicians, unions, and do-good organizations.
But the only consistent and vocal pressure to set things right and to remedy glaring breaches of the public trust comes from a handful of stalwart citizen gadflies -- and they're getting mighty tired and hoarse and old.  They need reinforcements.

Of course we know that the city's financial debacle is not the only issue needing attention.  In fact, people are debating so many hot-ticket issues nowadays that we risk succumbing to an ailment called (to coin a phrase) mass-attention-deficit disorder.  It causes people to run in circles and has the opposite effect of mass hysteria, which would at least focus attention to the rampaging elephant in the room.

So let's try this for a start: let’s take a quick break from the nonstop barrage of hot-ticket items like supersized Walmarts, cruise ship terminals, $4.1B in redevelopment projects, community gardens, and monkey business to change the way our city schools are governed.
Let’s put a cork in cheerleader frenzies over flashy proposals for downtown trophy projects.
Let's put these hot-ticket items on a sidebar* for now so they won’t get lost in the shuffle while we turn our attention to the hottest-ticket item of them all:

Preventing a city that is broke from becoming a terminally broken city.

Thursday, March 3, 2011

San Diego in 3D

Flying into Lindbergh is a trip! No matter how many times you fly back home there’s always some new sight you never noticed before -- a reservoir, cluster of houses, high school football field, freeway interchange. Each time it's a different revelation.
These bird’s-eye views rearrange and energize our thoughts, if only for a few minutes. Once we touch ground what happens? Instant reversion to a two-dimensional frame of mind. Find the car, speed down the freeway, unlock the front door, check for phone messages. Usual routine, same old groove.

A fresh perspective on San Diego’s political scene could also be a trip! Energizing. Enlightening. Useful. A new frame of reference can expose things you never noticed before. Reveal alternative routes. Surprise you. And this is the best part: you'll never want to settle for the same old groove again.

This is where NumbersRunner comes in. The goal? To provide a responsible, three-dimensional perspective of San Diego’s political landscape to figure out what's really going on in our city. Reliable information may be only half the battle in resolving local problems, but without it we're sunk.
We don't have to be sitting ducks. Or fish in a barrel. We can take the initiative. I invite you to become a regular reader of NumbersRunner.