Dan Walters: Public debts cloud future for California cities
01/20/2013 12:00 AM
02/26/2013 8:19 PM
Sacramento's city manager, John Shirey, delivered a sobering report to his City Council the other day, telling members that the capital city is nearly $2 billion in debt and that handling it will be an ongoing challenge.
"I know these numbers are big and seem scary," Shirey told The Bee. "This is about trying to inform and make people aware that the city does have debts and liabilities, and we are managing them."
Unfortunately, Sacramento is one of the few local governments taking such a proactive look at debt. And that's because many of their balance sheets haven't fully revealed those debts – especially long-term pension and retiree health care commitments.
The tendency among local officials – much like their brethren in the state Capitol – is to make financial commitments with little thought to long-term consequences.
That's how our governments dug themselves into deep budget holes – spending revenue windfalls on new services, giving employees big pension and health care benefits retroactively, and borrowing for grandiose projects without economic viability.
Three of California's cities rode that path into bankruptcy. While one, Vallejo, has emerged, two others, Stockton and San Bernardino, are still ruminating over which creditors will take haircuts.
Stockton's situation is especially egregious because it committed all of those fiscal sins. Its biggest debt is money it borrowed to pay its pension obligations, a double whammy.
In fact, most public debt in California is in the form of pension promises whose dimensions depend on assumptions of pension fund earnings.
We do know that the state's debt load is hundreds of billions of dollars, one of the largest, proportionately, of any state, when one counts unfunded liabilities for pensions and retiree health care. We know the governor and the Legislature are doing almost nothing about the latter.
We know that cities have something over $30 billion in bonded debt and counties another $20-plus billion, plus billions more in redevelopment debt. But those numbers don't count retiree obligations – and new accounting rules from Moody's Investor Service would, on paper, add tens of billions of dollars to their unfunded liabilities.
All in, with realistic pension fund earning projections, our governments may be upward of a trillion dollars in debt. Keeping afloat has become a major budget expense that robs money from other public needs.
There's nothing wrong with debt per se, if it's transparent, affordable and used for constructive purposes. Indeed, a functional credit market is vital to a healthy economy.
But it's clear that the folks in Vallejo, Stockton and San Bernardino didn't abide by that caveat, nor has the state government in many instances.
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