GO
Loading...

California Restructures, One City at a Time

Thursday, 9 Aug 2012 | 4:27 PM ET
Businessman reaching for life-preserver
John Lund | Blend Images | Getty Images
Businessman reaching for life-preserver

In the latest sign that California is buckling under a financial earthquake with several aftershocks, the state has released a Q&A on local government bankruptcies. It's a how-to of sorts for municipalities considering Chapter 9. For example, the state's Legislative Analyst's Office says in order to declare bankruptcy, a local government must "be insolvent."

Insolvency is becoming as common in the Golden State as Botox and hoodies.

The state has posted a list of school districts which are in financial trouble, based on projections. A dozen districts are not expected to meet their financial obligationsover the next year, and 176 other districts may join them. Interesting, not on the list is Poway, where the school district has made headlines for issuing $105 million in bonds in a delayed-payment plan that will end up costing the San Diego suburb nearly $1 billion.

By the way, Poway’s bondsare still rated AA- by S&P.

San Bernardino and Mammoth Lakes are hoping to follow Stockton—and Vallejo before it—into the bankruptcy process. At least a half dozen other cities have declared fiscal emergencies, which in some cases allows them to seek higher taxes. El Monte, for example, is using its fiscal emergency to ask voters to approve a soda tax.

Culver City is pushing for a sales tax to lift it out of dire straits, and the town of Herculeshas already gotten one.

The most dramatic turnaround has been in San Jose, where the mayor threatened a fiscal cliff last year. Voters in June overwhelmingly approved changes which cut benefits for existing employees, or forces them to contribute more, and can even reduce payments to current retirees in a fiscal emergency. Unions have already filed suit to overturn the law.

The bankruptcy guide from the state may help government officials, unions, and taxpayers better understand their choices, as a growing number of cities say they’re running out of cash. While Sacramento continues to cut services, borrow money, and hope for a voter-approved tax hike in November, little has been done to restructure the state’s tax code and budget in a way that provides long-term stability. Instead, the restructuring of California may end up happening one city at a time, from the bottom up, rather than from the top down.

California on Verge of Collapse?
CNBC's Jane Wells discusses whether California could be on the verge of collapse from financial tremors sending many cities and towns scrambling for a life-line or just trying to stay afloat.

Still, there is some good news. Despite CalPERS below normal performance in 2011, the U.S. Census Bureau says that overall, California's public employee pension fundsoutperformed those from other states, with 17 percent of assets but 20 percent of investment returns. However, the Golden State also doled out the lion's share of benefits, 15 percent of the nation's total, for a state with only 12 percent of the population.

- Reported by CNBC's Jane Wells

Featured

Contact Politics

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More