Special Section: San Bernardino
Editor's note: This is the second of a two-part special report on how a vicious circle of self-interest sank San Bernardino.
SAN BERNARDINO - In 2009, police patrol Lt. Richard Taack retired at age 59 after 37 years of service.
He took home $389,727 that year, including $194,820 in unused sick time and $33,721 for unused vacation time, according to city payroll records.
Taack's 2009 income was nearly double that of the city's entire street-sweeping department. In 2011, overtime pay alone for the Police Department - $2,766,175 - exceeded the total payroll of 12 other city departments, according to a Reuters analysis of payroll data.
Taack didn't respond to requests for comment.
It's an example of what's at the core of the city's deep financial troubles, and a question that has different answers depending on who you talk to: Where has the money gone in San Bernardino?
"I can't begrudge the man for receiving what he's entitled to under the contract," said David Green, the head road sweeper, who has seen his department cut to five people from 13 when he joined in 1995.
But he said there should be a better balance between the safety forces and other departments. "Nobody wants to drive a car and have to hit a three-foot pothole."
Indeed, potholes scar downtown. Many stores are shuttered. Abandoned lots sit unkempt. Since the bankruptcy filing, city finance officials have put forward proposals to close libraries, senior centers and a cemetery.
Interim City Manager Andrea Travis-Miller told the City Council this past summer that 250 non-safety positions had been eliminated in the past three years to save money - and implied that police and fire benefits were crowding out other essential services.
"I believe that city buildings, roads, trees and parks that have begun to show neglect would deteriorate further if more cuts are made," Travis-Miller said.
The police and fire unions fiercely dispute the charge that large salaries and pensions are to blame for the predicament. They point to the housing market crash, which left the city with the fourth-worst foreclosure rate in the country.
Scott Moss, head of the firefighters union, said 20 positions had already been cut from the Fire Department, leaving about 120 people.
"There's been mismanagement for years," Moss said over coffee in a local restaurant.
He noted that Mayor Pat Morris had majority support on the council for six years until union-backed members regained a majority in March. "The mayor and his people are trying to make us look bad."
Moss, 46, a fire paramedic, said he might retire at 53. Payroll records show a base pay of $94,500, and total 2011 wages, with overtime, of about $147,000. Moss confirmed the base figure but didn't comment on the overtime number.
Sick of the blame
Moss said he is sick of people blaming pensions.
"You go to bankruptcy, you got to blame somebody. So they say it's the benefits, it's the overtime - it's everybody but them," Moss said. "But what have they been doing these last six years?"
On sick-pay cash-outs, Moss said: "If you call in sick, you're a bad employee. So my guys don't call in sick. Then you get all this time you are owed - and you get vilified."
He added: "This is a dangerous city. It's an old, decayed city. It burns. There are gangs. The pay and benefits attract the police and firefighters it needs. Without them, you lose all the good ones. That's the balance."
Crime and gangs are real dangers in San Bernardino. In 2010, according to FBI data, the rate of known violent crimes - 8.15 per 1,000 people - was higher than in any other city in the region.
A five-minute drive from City Hall, on a residential street, sit flowers and homemade signs next to a picture of Angel Cortez. The 22-year-old was shot in the back of the head in May in what police suspect was a "gang-related" murder. His body was found in the backyard of a vacant home. His killers had first tried stuffing his body into a trash can, then returned to dig a hole, before unsuccessfully attempting to burn his body, police said.
Mayor Morris, a 74-year-old former judge who's been in office six years, is scathing about the power he says the unions have over much of the council. The unions, he said, "wag the dog." (Council members are paid just $50 a month for their service, but also receive a car allowance worth $600 a month).
He rejects Moss' argument that he should take responsibility for the financial crisis. He is particularly critical of his two-time challenger for the mayorship, City Attorney James Penman, who he said "has blocked all efforts to reform the budget" on behalf of the unions.
Morris added: "I have no vote on the council. I can only veto a vote if it is 4 to 3. All I have is the power of persuasion. I've told them a bunch of times to be far more conservative, not to be so generous with our unions, and it's advice they have largely ignored."
'Mean, divisive, corrosive'
Morris isn't running for re-election when his term expires a year from now.
"The politics of this place are and have been for decades mean-spirited, divisive, and it's corrosive to the extreme," he said.
Penman denies being influenced by the unions. He said he takes campaign contributions from the police and firefighters like most other elected officials in California.
He said he actually split with the police union in 2007 - a rupture reported at the time - and wasn't endorsed by them again until his last re-election bid in 2011. Campaign finance records show that he received $30,000 in contributions from the police and fire unions in 2011.
Of his critics, Penman said: "You are hearing from some people whose ethics and honesty are very much in doubt."
A key facilitator of San Bernardino's generous retirement packages was CalPERS, which manages pensions both for state workers and for many city and county employees in California.
Led by a board of directors who are all themselves members of the pension plan, CalPERS has for decades pushed to sweeten benefits for retirees.
A 1999 law championed by CalPERS, known as SB 400, cut the retirement age five years and increased benefits for state workers, all on the premise that a rising stock market meant benefits could be juiced up at little or no cost.
Many cities and counties, though not required to go along, were happy to heed CalPERS' analysis. About half - including San Bernardino - adopted the richer benefit formula.
When the stock market tumbled in 2000, cities and towns suddenly had to ramp up payments to CalPERS to make up for the hit to their fund balances, which were heavily invested in shares. Fee-hungry investment bankers stepped into the breach.
Led by the now-defunct Lehman Bros., they persuaded many cities - including San Bernardino and Stockton, which also filed for bankruptcy - that the best way to satisfy growing obligations to CalPERS was to borrow the money via so-called pension obligation bonds.
San Bernardino raised $50 million in 2005 by issuing these notes. Between 1999 and 2009, 26 California cities sold about $1.7 billion of debt to fund their pensions, including bond issues that were used to pay off earlier debt.
'CalPERS vs. Wall Street'
Yet even in bankruptcy, reducing pension costs by cutting benefits is not an option - at least according to CalPERS.
The pension agency says the benefits are carved in stone, arguing that from the day a worker is hired, the pension plan in place on that day for that person can never be reduced in value under any circumstances, including municipal bankruptcy.
That argument has never been tested in court. When the Bay Area city of Vallejo went bankrupt in 2008, it declined to challenge the pension payments to CalPERS, in part because of the daunting legal costs involved.
But the pension-bond insurers who are now on the hook for defaulted bonds in both Stockton and San Bernardino have signaled their intention to do battle with CalPERS in bankruptcy court. San Bernardino, in an unprecedented move, has already stopped making payments to CalPERS.
"CalPERS is the 800-pound gorilla in the room," said Michael Sweet, a bankruptcy attorney at Fox Rothschild, which is not representing any parties in the San Bernardino bankruptcy. "No one has yet taken on CalPERS. This is going to be a huge fight, and it's going to be CalPERS versus Wall Street."
CalPERS says it wasn't responsible for the decisions made in San Bernardino. Alan Milligan, chief actuary at CalPERS, said the 1999 legislation "provided options to cities and agencies to change their retirement benefits, but it did not encourage or force them" to do so. "CalPERS does not give advice about how an agency should pay for their retirement benefits."
Brad Pacheco, a spokesman for CalPERS, said San Bernardino lost major employers in recent years and was one of the U.S. cities hardest hit by the foreclosure crisis. He said San Bernardino's annual pension costs account for just 10 percent of the total city budget.
Those figures, however, exclude the city's $46 million in pension-bond debt plus its unfunded debt to CalPERS. The city in its bankruptcy filing says it is $143 million in the hole to CalPERS. CalPERS says that if San Bernardino pulled out of the plan, it would owe $320 million to cover its current and future obligations.
San Bernardino and Stockton are hardly alone. A handful of other small California cities, including Atwater, Hercules and Compton, are teetering near bankruptcy.
Big California cities that run their own pension plans also have deep problems. San Jose, hub of Silicon Valley, and San Diego, biotech center of California, both passed pension reforms in June in the face of unmanageable retirement benefits. They are now defending those measures in court against public-employee lawsuits.
In Los Angeles, Mayor Antonio Villaraigosa, a former labor organizer, led a push to raise the retirement age and cut pensions for new, non-safety city staff. He exempted police and fire employees. A ballot measure sponsored by former Mayor Richard Riordan aims to include them in the cuts, too.
And while California has the biggest pension debt in the United States in dollar terms, it's not the worst off. Illinois and Kentucky plans are battling for the dubious distinction of having the lowest ratio of assets to liabilities, according to the Center for Retirement Research at Boston College.
The chronic mismanagement in San Bernardino, though, is a common feature of local government in California and around the United States. Much power over municipal finance lies in the hands of those with the most at stake - city employees, elected officials and others who depend directly on government for their livelihood. And California is moving to put even more responsibility and funds, not less, in their hands.
One of Gov. Jerry Brown's marquee initiatives is realignment, an effort to move more public-safety, welfare and prison services from state control to the cities and counties. Local governments are more flexible and more responsive to local issues, Brown argues, and thus able to make better decisions.
Charles McNeely, who served three years as San Bernardino's city manager after 13 years in the same post in Reno, Nev., quit last March, citing the "toxic" atmosphere on the council.
He had warned repeatedly that without change, the city faced ruin. In a presentation to the City Council in August 2010, he said spending was far outpacing revenue and predicted a budget deficit of $40 million for this fiscal year.
"I don't know how you could come out of that meeting not understanding we had a serious problem," McNeely said in an interview. "I told them, `You're headed for trouble, it's a train wreck. You can't keep doing business this way."'
Additional reporting by Peter Henderson and Jim Christie in San Francisco.