California

Sweet Smell of Bankruptcy: Bay Area City Manager Looks at Life After Default

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Not this Antioch…

The Contra Costa County town of Antioch, best known as the site of the imprisonment and serial rape of Jaycee Dugard, has been considering bankruptcy throughout this year. While the city is trying to fob off a sales tax increase, one Antioch official is already preparing to close the city's financial gap through actual spending cuts -- or by just going belly up. Dave Roberts of the Antioch Press talks with city manager Jim Jakel

But city officials are looking at a $4 million budget shortfall in the fiscal year starting next July. And $4 million is the amount that officials expect the city to receive each year for the next eight years if the tax hike measure passes. If it fails, it will be Jakel's job to make additional cuts in a city staff that he's said has already been pared to the bone. And this time it's unlikely that police officers will be spared the budget axe, despite the city's violent crime problem.

… This one.

"If it fails, we will make the reductions we have to make, and face a greater percentage chance of bankruptcy," said Jakel. "But we are still in control. We start this budget year with $34 million (in the General Fund). We know we had a good operation, but not a flush or big operation, at $47 million (several years ago). We will buy $34 million of municipal services, and do the best we can with direction from the council for $34 million.

"If the public doesn't vote for it, that's perfectly OK. We will do what we need to do. I can probably come up with a lot of the reasons the public wouldn't vote for it too. It's a tough economy and people don't want to pay more money. But it's incumbent on the city to put it to the voters to make that choice. In bankruptcy one of first things that the magistrate will say is, 'Did you ask the people in your community to pay more? If the answer is no, then go ask.' That's what they did to Vallejo."

What would it mean for city government and for residents if Antioch joined Vallejo in bankruptcy? "It's a rarity in the whole country; so it's very unusual to know," said Jakel. "My understanding is you pretty much run as usual. There will be some sort of legal process with an outside entity who's going to be double-checking and overseeing. But the City Council is still the City Council. The management team is still generally in place. You have court-appointed authorities who oversee it.

Govenment by Texas Instruments.

Corrections: Although Roberts puts Jakel's annual compensation at "just short of $200,000," the city manager in fact makes $221,000 a year, according to tax records gathered by the League of California Cities in its manager compensation survey. Also, while the article implies the tax hike would be applied to closing the deficit, a landmark study [pdf] of federal tax policy suggests that revenue increases do not reduce deficits and may increase them –and California's fiscal experience over the past decade supports this view.

Although Vallejo's bankruptcy ended up not getting the city out of its pension obligations to government employees, default remains an attractive way for municipalities to escape impossible fiscal straits. Organized labor has been trying, without much success, to close this option off. Assembly Bill 155, which would have subjected insolvent cities to review by a state panel packed with union muscle, failed in the legislature last month, and the idea didn't make it onto the November slate of (mostly bad) ballot initiatives. Jakel is the rare city official willing to talk about default, but more cities should be considering this option.