San Bernardino Councilman Rikke Van Johnson explains municipal bankruptcy process at a town hall meeting last week. What role has the loss of redevelopment money played in the city's fiscal crisis?
The San Bernardino City Council is expected to vote tonight to declare a fiscal emergency, enabling the Inland Empire municipality to proceed directly to Chapter 9 bankruptcy without passing the 90-day state-mandated "Go" of mediation with its creditors. I've been reporting on how San Bernardino wound up with a fiscal crisis — and why other California cities may be staring down the same nightmare scenario.
But one thing that has city officials particularly enraged in San Bernardino is the loss of state redevelopment money. Last year, Gov. Jerry Brown and the state legislature took back money that had been going to redevelopment agencies to close the state's massive budget deficit. The total loss to cities? Around $6 billion.
The move — which was fought by the redevelopment agencies and got all the way to the California Supreme Court, where the new law was upheld — hit San Bernardino hard.
"When redevelopment was eliminated in one fell swoop, $5 million in costs shifted to the city. That's what brought about our cashflow crisis," said Jim Morris, Mayor Patrick Morris' Chief of Staff. He added that San Bernardino has been able stave it off its current crisis, as revenues increased modestly since the financial crisis and city employees agreed to wage cuts.
"That helped to paper it over a bit," he said.
But without the redevelopment funds, he said that San Bernardino would have been looking at bankruptcy two years ago. Furthermore, he insisted that redevelopment was designed for older cities like San Bernardino, with their extensive infrastructure requirements — the need to maintain streets, bridges, and so on. Basically, to keep good old historic California cities from turning into bad old crumbling California cities.
He explained that both Mayor Morris and Riverside Mayor Ronald Loveridge met with Gov. Brown to plead the case for their respective cities. "They said that this is going to hurt us, that redevelopment is a lifeline for us."
Morris and Loveridge pointed out that Brown had done what they were doing when he was mayor of Oakland, and they also argued that they didn't have the same access to finance as younger California cities. (San Bernardino established its charter in 1905, and Riverside passed its charter in 1907; Oakland is also one of the state's old-line charter cities).
According to Jim Morris, "Brown said 'Don't delay the funeral. This is a different time and different problem.' It was basically state first, city second."
Last November, Michael Lewis published a piece in Vanity Fair that explored the implications of that arrangement — state first, city second. He introduced us to Meredith Whitney, a famous Wall Street analyst who became a reluctant municipal-finance expert and called what's happening right now with city's like San Bernardino:
From 2002 to 2008, the states had piled up debts right alongside their citizens’: their level of indebtedness, as a group, had almost doubled, and state spending had grown by two-thirds. In that time they had also systematically underfunded their pension plans and other future liabilities by a total of nearly $1.5 trillion....[Y]ou were looking at multi-trillion-dollar holes that could be dealt with in only one of two ways: massive cutbacks in public services or a default—or both. Whitney thought default unlikely, at least at the state level, because the state could bleed the cities of money to pay off its bonds. The cities were where the pain would be felt most intensely. “The scary thing about state treasurers,” she said, “is that they don’t know the financial situation in their own municipalities.”
You could read that in San Bernardino and nod your head in assent. But Sacramento is taking a hard line. H.D. Palmer, a spokesperson for the state's Department of Finance, pointed out that California is simply carrying out the law, as upheld by the state Supreme Court. And while he acknowledged that specific financial circumstances may be different for each city facing a fiscal problem, using redevelopment money as a lifeline wasn't necessarily a good solution.
"Redevelopment money was intended to mitigate blight," he said. "That was the original intent. But that intent has clearly changed since the mid-1940s." (The California Community Redevelopment Act dates to 1945.)
Jim Morris called the end of redevelopment a "short-term fiscal fix for the state."
"You can reform redevelopment," he said. "But don't abolish it where it's the only hope of [older cities] to maintain their infrastructure."
And, when sales and property taxes plunge by $6.5 million since 2008, according to the city's own numbers, San Bernardino might say, Don't abolish it when it's the only means you have to avoid a cash crunch.