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State Government Poses Greatest Danger to Local Government Solvency

State Government Poses Greatest Danger to Local Government Solvency

On Friday, I offered the opinion that bankruptcy will continue to be an anomaly in the “new normal” that will emerge from this recession. There is, however, one factor that could change that: the shortsighted and toxic impact of state government intrusion into municipal finances.

The state, more than any other entity, has the ability to cripple a local government in California. Their actions – intended or not – could be enough to push a teetering government into bankruptcy.

Sacramento is the one, notable, $87 billion variable in the local government equation.

The state has assumed the ultimate authority to borrow, raid, and steal from budgets at all levels of government. Their attempts to “balance” their own budgets on the backs of others are synonymous to the San Bernardino example in Friday’s opinion. The significant difference is that their stopgap approach not only injures their long-term stability, but it endangers others’ as well.

Think about the unforeseen consequences that arose from the uncouth dissolution of Redevelopment Agencies.

State-level greed for a one-time reprieve from the billions it sends to schools had lawmakers target redevelopment agencies. Their hope was that the billions of dollars of “free” money would wallpaper over the massive holes in the state budget. So, to maximize their grab and by working in through a constitutional technicality, they dissolved the institutions virtually overnight.

In addition to threatening economic development projects, they took money that had been used by many to defray the costs of city employees. Perhaps that wasn’t the original intent of a Redevelopment Agency, but dual function employees became prevalent in government. When redevelopment funds disappeared, numerous positions were left underfunded.

It left cities scrambling to cover the bills, and in some cases, cities issued layoff notices.

To make matters worse, the state proved to be impractically inflexible in their demands for money. By Monday, July 9, the state was required to issue its redevelopment bills to successor agencies across the state. Since most redevelopment agencies named their local city as their successor agency, California cities received bills for millions of dollars.

In Alameda County, the state is demanding a total of $62 million from 25 successor agencies. Not all of the cities have enough money to cover the state’s bill. In Pinole, they city has just $23 in its reserve accounts, but is borrowing $1 million to pay the state. Fremont sent a strongly worded objection along with their check for $4.4 million

In Southern California, Costa Mesa called a special city council meeting to decide what to do about its $1.4 million shakedown.

Payments were due on July 12, just 72 hours later.

Many of these cities just completed their budget processing for this fiscal year. All cities in the state are required to operate on balanced budgets. Many must now decide how to pay their millions to the state. That means either mid-year cuts or mid-year borrowing. In either case, unexpected expenses with two commas are dangerous, at best.

The demise of redevelopment was controversial. But what is more difficult to dispute is that the state’s desperate grab at funds is a threat to the short-term and long-term solvency of this state’s local government.

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