California's cities are feeling the financial pinch as property and sales tax revenues stagnate or decline and as the spending commitments they made during the now-deflated housing boom, especially bigger payrolls, haunt them.
The Pew Charitable Trusts has declared Los Angeles to have the fourth worst fiscal condition of the 13 large cities it surveyed. Former Los Angeles Mayor Richard Riordan has advocated bankruptcy for his city, and the current mayor, Antonio Villaraigosa, is calling for the city's payroll to be sharply downsized.
Last week, the Stockton City Council declared a fiscal emergency because of stubborn budget deficits and stalled negotiations with unions on cutting payrolls.
Stockton was the epicenter of California's housing boom and the center of its bust. During the boom, the city spent heavily on new workers, new services and new facilities, including a waterfront sports-entertainment-tourism complex that's hemorrhaging red ink.
So far, just one California city, Vallejo, has declared bankruptcy, but nearby Antioch is considering it. If the recession persists and revenues continue to stagnate, others may follow. That's why municipal employee unions are making a big-time push for legislation that would make bankruptcy more difficult.
The unions' underlying motives are crystal clear. They fear a bankruptcy judge might rule that a city's labor contracts, or even pension obligations, could be abrogated. They want to make municipal bankruptcy more difficult to discourage troubled local governments from resorting to it.
The legislation, Assembly Bill 155 by Artesia Democrat Tony Mendoza, originally would have required local governments to get permission from the California Debt and Investment Advisory Commission, an otherwise obscure body dominated by union-friendly Democrats, before seeking bankruptcy.
The bill passed the Assembly in that form, but stalled for months in the Senate Local Government Committee until Senate President Pro Tem Darrell Steinberg changed the committee's membership to ensure approval. Then, before the measure cleared the Senate Appropriations Committee last week, Mendoza amended it to keep the requirement for commission review but allow local governments to disregard its findings.
That would appear, superficially, to make the bill less onerous to local government groups opposing it. But if enacted as now written, it also would create weeks, even months, of delay before a bankruptcy petition could be filed, thus denying local governments immediate protection from creditors.
The latest amendments are clearly aimed at allaying qualms among some Democratic legislators about voting for AB 155 to make it more likely the bill will reach Gov. Arnold Schwarzenegger's desk. But the governor's potential veto still looms large.
