Standard & Poor's, the venerable credit-rating agency, chose an opportune moment to unveil its annual fiscal scorecard for American cities, including those in California.Its release came as local governments were assessing the impact of recession on their current budgets and beginning to look ahead with trepidation to the next fiscal year.
Twenty-five California cities received S&P's Triple-A rating for their fiscal situations, the most of any state. Only one of those cities - San Jose - is very large. The others are uniformly smaller, affluent and mostly white enclaves such as Beverly Hills and Mill Valley.
Even as S&P's list was being released last week, San Jose was beginning to deal with an estimated $90 million hole in its city budget - about 10 percent - and officials were talking grimly about layoffs or other steps to reduce labor costs.The state's chronic, multibillion-dollar budget deficits have made headlines not only in California but elsewhere. A new Pew Center on the States report, for instance, titled "Beyond California: States in Fiscal Peril," uses California as a case study in irresponsible budgeting. But the state's local governments are facing equally difficult times, and they lack many of the tools that the state could use, such as raising general taxes, to relieve the pressure.
Los Angeles, by far the state's biggest city, appears to have the biggest problem. Another credit rating agency, Fitch's, has downgraded the city's credit standing. The chief city administrative officer, Miguel Santana, told the City Council last month that billion-dollar annual deficits loom on the horizon.
San Diego is reporting a $179 million deficit in its city budget. San Francisco Mayor Gavin Newsom says the city's 2010-11 budget has a $522 million gap between income and outgo.
Some smaller suburban cities, especially those that were hardest hit by the bursting of the housing bubble, are in even worse condition.
Uniformly, the underlying problems appear to mirror those of the state budget and those of Vallejo, a suburban city that's already been driven to bankruptcy court.
When money was rolling in from the housing boom, primarily sales and property taxes, city officials - especially in communities with powerful public employee unions - ramped up spending dramatically. Payrolls, the biggest single expense for any local government, expanded. Salaries and fringe benefits, especially pensions, blossomed.
There was an assumption - or a fantasy - that the good times would last forever. Few cities socked away their revenue windfalls. Those that did, such as Fresno, are weathering the downturn more easily than their profligate cousins.
Big-city mayors and city council members tend to be very dependent on public worker unions for their careers, so it will be very interesting to see how they deal with their budget crises.
