Oakland California Ponders Bankruptcy

Oakland California has serious budget troubles. In a closed door city council session, Oakland Mulls Bankruptcy.

"We have asked the (bankruptcy) question because we wanted to know the impact," said District 5 council member Ignacio De La Fuente. "In closed session, the question has been asked, and an answer was given." He would not elaborate. "It's a possibility," he acknowledged. "Things are that bad."

Council President Jane Brunner was equally aloof. She ably acknowledged the city's dire financial problem while managing to avoid the b-word altogether.

"We're going to try to avoid it, but am I going to say it would never happen? I can't say that," Brunner said.

Consider the city's cash position: Out of next year's general fund of approximately $415 million, police costs are estimated at $212 million, fire protection service $103 million and $41 million in debt service payments. That leaves about $60 million to pay for everything else, from library services to recreation centers to public works.

And that calculation doesn't include $50 million more in deferred debt service in a budget proposal presented to the council last month by Mayor Ron Dellums.

Alameda County Assessor Ron Thomsen said tax assessments fell $13.6 billion in the fiscal year that will end June 30. "Our assessment roll will go down 2 percent, and we've never had a year-to-year drop ever in stats going back to 1958," he said.

[The city council] is faced with three choices: drastic pay reductions across the board, including police and fire services; massive layoffs; or bankruptcy.

It has been a great run for municipal employees in Oakland and across the state, who have been the beneficiaries of one of the most generous civil service systems in the nation.

Since the late 1940s, California municipal governments traditionally have employed fewer employees, who have been paid substantially more than other civil servants, Ellwood said.

Indeed it has been a "great run for municipal employees" who worked less for more pay and received more benefits than anywhere else in the nation.

Oakland should do itself a favor and beat the rush by declaring bankruptcy now unless the unions come forth and voluntarily agree to lower benefits and stop all defined benefit plans going forward.

The structural damage caused by ridiculous pension plans is staggering. A point of no return has been reached. Cities can no longer put off the problem and the public is not willing to put up with higher taxes. So what's it going to be? The article mentioned three choices. I have it at four.

Union Choices

1. Huge pay cuts
2. Huge benefit cuts
3. Massive layoffs
4. Bankruptcy

By the way, huge benefit cuts seem more like a requirement rather than an option if bankruptcy is to be avoided. In Boston, Brain Dead Disorder Hit Union Leadership.

Are the Oakland unions any smarter than the unions in Boston or Vallejo?

Before you vote please ponder this: Judge Rules Vallejo Can Void Union Contracts.

Expect to see a surge of cities considering bankruptcy. In addition expect to see municipalities in Florida and Alabama to do the same. The interesting thing to watch will be how far and how fast this spreads.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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