This is an unfinished Group paper here, you need to work for three part of this paper, they are: 1. Long Terms Impacts If Issue Remains Unaddressed. ( one page, double space ) 2.  Available Solutions

Introduction

Introduction – here you introduce your topic. You provide a short description of why what you are doing is important. You also provide a quick summary of your argument and you give us a short road map of how you plan to achieve it.

On July 12, 2012, The City of San Bernardino sent out a press release announcing their decision to begin filing for Chapter 9 Bankruptcy. The city projected a $46 million budget shortfall for the current year and announced their near term goals to address the situation. The city would formally file an emergency petition for bankruptcy on August 1st, 2012. Of course their financial condition didn’t develop overnight. The city had been aware of the increasing financial pressures and took steps to reduce their obligations in the previous years.

Our focus in this story is the financial management of the local fire department and the cost of its regional fire service. We will evaluate the general financial condition of the city with emphasis of the fire service in the years prior to the 2008 recession, the circumstances leading to the annexation of the city fire by the county in 2016, and their continued regional cost in today’s county budget. We will also compare and contrast the City of San Bernardino with other cities that are similar either demographically, by population size, or by income levels to see what other financial management options could have been chosen. Finally, our group will collaborate on our findings to suggest options available to the region now to improve fire service costs into the future.

Financial Management/Fiscal Issue (in this section you discuss in detail the financial management or fiscal issue that is faced the local government that you have chosen to analyze. You discuss what makes this issue critical on the background of municipality’s financial and demographic makeup (e.g., taxing base, revenue, debt).

San Bernardino Cities financial issues were a long time coming, and due to poor politically influenced decisions. Focusing on the fire service portion of their financial reports, and where necessary the broader public safety portion (which includes police), we can see an increasing cost of service. Were the data is available, we also see an increasing average pay per fire employee, though during the same period, a relatively constant call volume. This financial burden, among others, will prove a contributor to San Bernardino’s bankruptcy filing.

Roman (2016) frames the early political circumstances of the City San Bernardino. He states how the police and fire unions were so powerful in their ability to deliver votes that, “A council chair remained largely “unattainable” without direct endorsement from the public safety unions.” (p. 686). Furthermore, Roman explains that while the elected Mayor nominates the police and fire chief, they are approved by the city counsel. While they (the chiefs) work for the mayor, they can only be removed by a council vote, functionally having them work for the council. Add onto this the political necessity of having the police and fire unions support to be on the council, and the unions reach an untouchable status. This conflict of power between the Mayor (and city manager) with the city counsel slows the decisive decision making process by introducing political influences. Further in the report, Roman quotes a high-ranking city employee who discusses the fractional nature of local politics. That in an area of such low voter turnout, having the political support of a single faith organization could heavily influence the election. The San Bernardino County Elections Office of the Registrar of Voters website shows city turnout percentages below 16% of registered voters for local general elections. In 2014, only 12,245 votes were cast (15.78%), and in 2016, only 2,768 votes were cast (14.41%). The most recent Statewide and Presidential general elections increase to 58.16% and 75.77% respectfully.

Roman (2016) goes on to explain Section 186 of the city charter that determines the rationale for police and fire employees compensation. The strategy is to average the salaries of other responders from ten California cities with similar population sizes. This average however is only based on population and doesn’t consider the average income of San Bernardino City or its ability to pay those wages and benefits. “In 2012, police and fire expenditures ($92 million) represented approximately 72% of the general fund ($128 million)” (Roman, 2016, p. 687). Roman (2016) cites a quote from a city employee who expresses frustration that San Bernardino salaries are based off nearby cities with average incomes three to four times higher - especially considering a third of San Bernardino’s residents live below the poverty line. “When you do that, you end up having a police sergeant making $120,000, before overtime” (p. 687).

After reviewing the publicly posted San Bernardino City Comprehensive Annual Financial Reports from 2003-2018, the chart below was created to show the trends of increased annual salary budgeted and average salary per person in the fire department. Salaries per person are only rough estimates made by the author.

• (*) = Exact number of fire personnel no longer provided in the Financial Report starting 2006. Number provided assumes 28% of the total public safety personnel are fire personnel, averaged from 2003-2005.

• (**) = Cost per call was not calculated since the Financial Report has an additional “other” fire expense not shown here.

• (***) = Starting in the year 2014, the financial reports no longer distinguished fire and police funding. Instead combining both into one public safety expense shown in the chart. Though from 2003-2013, the fire share of public safety salary expense had averaged 36% year after year.

• 2012 was the last year where demographic and economic statistics were included at the end of the financial report. They also stopped providing the number of public safety employees.

• The 2016 LAFCO annexation report does include a count of fire personnel from the city who became county employees, however this count was excluded from this report because no other estimates were available between 2013-2015.

In the San Bernardino City Financial Report (2014) the Safety Plan, which adjusted the contribution requirements and retirement age with CalPERS for sworn police and fire employees, took affect June 30, 2014. Employees with hire dates prior to January 1, 2013 (with 5yrs vested service) have a retirement age of 50 with an employee contribution rate of 9% and an employer contribution of 31.455%. Employees with hire dates after January 1, 2013 have a retirement age of 57 with an employee contribution rate of 12.25% and the same employer contribution rate. The report states the annual pension costs that year were $10.8M. Though not part of the public safety budget, this amount would be over 13% of the annual public safety budget.

On April 8, 2016, San Bernardino City approved Resolution No. 2016-68 which was an agreement with the San Bernardino Fire Management Association to move all fire services from the city to San Bernardino County Fire effective July 1, 2016 (City of San Bernardino - Exhibit 33, n.d.). To get an idea of how the firefighters are paid since then, we reviewed The San Bernardino County Fire Budgets. However, it must keep in mind that under County Fire, San Bernardino City is just a portion of the Valley Regional Service Zone. The chart below summarizes the annual staffing expenses before and after the annexation - along with a rough salary per employee calculation made by the author.

• (*) = Addition of 40 positions due to annexation of the City of Uplands’s fire service. Addition of 3 Firefighter Paramedics (San Antonio Heights). Deletion of 6 Paid positions.

• (**) = 2018-19 Recommended Budget includes estimated figures.

• (***) = Includes 7 Office of the Fire Marshal staff, the rest are Valley Regional Service Zone staff. These staff members were only distinguished in the report for that year.

Our review and analysis of the San Bernardino City and SB County Fire budgets seem in line with the claims of city employees from Roman (2016). Despite the increased financial stress approaching the 2008 recession, and eventual bankruptcy claim, it doesn’t appear fire employees took a salary hit as the city cut back. Rather their unions were able to fight for ever increasing pay per person despite the city financial crisis. This trend seems to continue at the SB County Fire level today.

POPULATION:

San Bernardino

It is estimated that the urban population of San Bernardino is 216,239. The city has a total area of nearly 62 square miles and a population density of more than 3,500 inhabitants per square mile. It is the most populous city in San Bernardino County and the 100th most populous city in the country.

Despite the difficulties such as bankruptcy and terrorist attacks, the city of San Bernardino has continued to grow since the 1880 census. At times, its percentage growth rate even exceeds 100%. By the time of the 1970 census, the city had more than 100,000 inhabitants. In 2010, another milestone was reached, with San Bernardino having a population of more than 200,000 people. Today, since the last poll in 2010, its population has grown by about 3%. This figure shows some slowdowns compared to the last census data, but the city continues to be densely populated.

FireFighters Populations

San Bernardino

Literature Review (in this section you provide a synthesis of the literature in the field on the issue that you are research. In other words, you summarize what others, scholars and practitioners, have said about the issue that you have decided to research. The literature needs not be specifically about the local government of your choice. It simply needs to provide insides into the issue whether it draws on other local governments or on theoretical deliberations.)

Salinas, CA

In order to compare Comprehensive Annual Financial Reports between San Bernardino City and other cities research was done to find one city that was comparable in income level, demographics, and population. Three cities were selected, each matching on of the three comparable areas. For demographics the City of Salinas, California was selected. The below chart compares San Bernardino City to Salinas City. (U.S. Census Bureau, 2018).

In the Salinas City Financial Report (2017) the Cost-Sharing Multiple Employer Defined Benefit Pension Plan will include all permanent and probationary fire tier 1 & tier 2 employees is administered by CalPers. For Fire Tier 1, employees with hire dates prior to January 1, 2013 (with 5yrs vested service) have a retirement age of 50 with an employee contribution rate of 9% and an employer contribution of 54.240%. Employees with hire dates after January 1, 2013 have a retirement age of 57 with an employee contribution rate of 9.00% and an employer contribution of 12.250%. For Fire Tier 2, employees with hire dates prior to January 1, 2013 (with 5yrs vested service) have a retirement age of 50 with an employee contribution rate of 9% and an employer contribution of 17.295%. Employees with hire dates after January 1, 2013 have a retirement age of 57 with an employee contribution rate of 9.00% and an employer contribution of 12.250%. Although both Salinas and San Bernardino Cities fall within CalPers their retirement costs for fire employees are drastically different. Salinas has taken a more conservation approach to employer contributions which in turn lowers the city’s expenses.

Below is a chart that shows that the staffing expenses are for the city of Salinas. On average, general funds dollars support 87% of the funding below and the other 13% is funded through a variety of measures, service funds, and grants. The average household income for the City of Salinas is $54,864.

Salinas is a city in Monterey County, located outside the Grand Bay area. By 2019, Salinas had a population of 158,000, making it the 34th most populous city in California. About 38% of Salinas' 158,000 people are born outside the United States. The Hispanic population of Salinas is the majority. Nearly three-quarters of the inhabitants are Latino, many of whom are immigrants from Mexico who work primarily in the agricultural sector of Salinas.

Before the establishment of Salinas in 1870, the population was 599. In the next decade, the population of Salinas more than tripled, and the latest census data as of 2019 showed that Salinas had a population of 157,596. Salinas’ youth crime rate is high and is known as the “California’s youth murder capital”. Most importantly, the lack of affordable housing has kept its growth rate unchanged for the next few years. Since the recovery of the 2007-2008 financial crisis, the city's population is expected to continue to grow slightly.

Fresno, CA

To compare the allocation of general funds to fire fighters in cities with similar median household income levels we chose Fresno, California as a comparable city with a median household income close to that of San Bernardino and relatively close poverty levels as well. Through reporting by the Census Bureau, we found in this table the median household incomes between reports for 2013-2017 and compared the poverty levels (U.S. Census Bureau, 2018):

Stated in the City of Fresno 2017 Financial Report, the City sponsors two single-employer pensions plans one of which is the City of Fresno Fire and Police Retirement System (Systems) which is administered by their own respective Retirement Board and is not under the control of the City Council. This board holds “sole and exclusive responsibility” to administer their benefits. To which, Fire and Police members of Tier 1 are eligible to retire at the age of 65 regardless of their time in service or at age 50 if they have already acquired 10 or more years of service. Tier 1 benefits for a member of at least 20 years is equal to 55% of final compensation plus 2% each year of service in excess of 20 years after age 50. (City of Fresno CAFR, FY17) Tier 2 members are

Stockton, CA

The city of Stockton, CA filed for Chapter 9 bankruptcy on June 28, 2012. The city of 300,000 residents was the largest city to file bankruptcy in the United States at the time (to be later beaten by Detroit, MI in 2013). In an article by Christie (2012), the reasons for the eventual bankruptcy are long, stemming from multi year decisions to continually spend while the economy was rising, and leaving themselves no way out when the economy eventually sank. However, the article is quick to state that the start of the problems was in the January 1, 1996 decision to fully pay healthcare costs of their retired firefighters (beyond the previous age limit of 65). At the time, the unions were fighting for a wage increase. Officials were sitting on a booming economy and the offer of increased medical benefits in retirement seemed like a cheaper option. The article quotes Bob Deis, the city manager at the time as saying, “the decision to provide free healthcare to retirees as a “Ponzi scheme” that eventually left the city with a whopping $417 million liability” (Christie, 2012).

Greenhut discusses the firefighter healthcare solution in his 2018 article for the California Policy Center. He mentions how CalPERS fought hard to require Stockton to meet its retirement obligations but how federal Judge Christopher Klein wrote that the city could in fact reduce its pension deals if it made the city financially unviable. However, the city was able to establish special taxes for public safety pensions and therefore didn’t have to reduce pensions. This solution has its own problems though. The pension cost is still significant, and “crowds out” other services. He quotes former Assemblyman Dean Andal, “We have much higher taxes and much lower service levels that before the bankruptcy” (Greenhut, 2018). While the city is doing well financially today, the services levels have decreased at the expense of the taxpayers.

Looking at the Stockton city CAFRs from 2010 to 2018, we can see the drop in services Assemblyman Dean Andal mentioned. The city had 275 sworn firefighters in 2006, though the number steadily dropped to 229 in 2010. The number drops significantly after the bankruptcy to 168 in 2013. Using the same rough salary estimation per fire employee as performed for San Bernardino, the 2013 estimate is $203k. Since the bankruptcy, Stockton has maintained nearly identical firefighter counts, however the estimated salary per employee now is $278k. While more research is necessary to account for this per person increase, it is clear that Stockton firefighters are having to cover the same area and workload with 38% less people when compared to 2006.

Long Term Impacts If Issue Remains Unaddressed (here you examine the possible long term financial and fiscal impacts in case the issue remains unaddressed.)

In some respects, the long term impacts to San Bernardino City have already happened. Their decisions, whether made out of political necessity, or simple fiscal irresponsibility have proven to be unsustainable. San Bernardino as it was can no longer be. They are forced to negotiate with all of their creditors and create a plan to reduce services and continue to make payments into the foreseeable future. They are currently still required to meet their pension obligations and are therefore dependent on the economy. While they have established an economic plan, they have to make continual adjustments based on an underperforming economy and the cities requirement to meet the obligated payment amounts. Though the fundamental problem of powerful unions doesn’t appear to have been addressed. As the County Fire financial records show, there is a concerningly increasing cost of valley fire service. While special taxes have been put in place to fund this service for now, regionally the are may not be any better off. Residents may continue to pay more for lower level service.

Available Solutions (In this section you identify the solutions that are available to the local government in terms of addressing the issue. You discuss the major benefits and drawbacks of each of the solution.)

What San Bernardino could do from lessons learned on other cities

For all budgeting matters the City of Salinas uses the priority based budget model, where resources are allocated based on how effective a service meets the city’s priorities and how effective the service is in meeting the goals that are the greatest value to the community. A ranking system was created to evaluate all programs and services. The lowest ranked areas were then reviewed and where expenditures were cut. One of the highest rank goals is a safe, livable community, which is where firefighter fall. The City of Salinas uses several Measures to help fund firefighter salaries. In 2018-2019 fifteen firefighters were funded through Measure E and G, which is just over 15% of their total firefighter workforce A second way the the City of Salinas has helped cut their general fund dollars for the fire department is by lowering the amount of firefighters scheduled for each shift. The city chose to go from having 26 people on a shift to only 24 people on shift, this was done to help reduce overtime costs. Reducing overtime costs was one of the priorities for 2018-2019 and it will continue to be implemented in 2019-2020. In 2017-2018 overtime costs were 2.7 million and in 2018-2019, when the priority of decreasing overtime hours was started, overtime costs were slightly over 1 million. This is a reduction by almost 64%. (City of Salinas, FY 19-20, pgs. 99, 119, 124, 202, 205) San Bernardino could look into reducing overtime hours and also using measures or grants to help fund the firefighter salaries and reduce their overall expenses from the general fund.

While Stockton continues to have financial concern, it can serve as a ray of hope for cities considering bankruptcy. While this paper doesn’t go into the differences between chapter 9 & 11 bankruptcy, Stocktons stable finances now show how a city can bounce back provided strict adherence to their post bankruptcy plan. Stockton also showed that while contentious, the courts can support an agency standing up to CalPERS and reducing their commitments as a last resort.

One potential solution is the implementation of Participatory Budgeting (PB) as discussed in Yves Cabannes 2014 paper. The article discusses the numerous benefits of PB but has key takeaways for San Bernardino City regarding the increased public participation and prioritization. As the article mentions, PB programs always prioritize basic services first and are very popular with their constituents. Given San Bernardino’s low voter turnout, this may be a way to engage more of the public and create a greater sense of ownership. Furthermore, if the public can prioritize their services, they can see for themselves what the funding impacts of the public safety unions are. At that point, the public can decide whether a reduction of basic services is worth it to them, to continue supporting politicians fiercely loyal to those unions. This may provide a means to sidestep the political challenges and change the political mindset in the region.

Policy Recommendation (after identifying all possible solution, in this section you provide your policy recommendations for addressing the financial and fiscal issue faced by the local government. You draw you recommendation based on the research that you have conducted.)

What they should have done

What they can do now

References: (15)

(Done by week 8/13/19)

City of Fresno, FY17 Comprehensive Annual Financial Report. Retrieved from: https://www.fresno.gov/finance/wp-content/uploads/sites/11/2018/01/2017-FINAL-Web-CAFR-Secured-BM.pdf

City of Salinas, FY 2016-17 Adopted Operating Budget. Retrieved from: https://www.cityofsalinas.org/our-city-services/finance/budget-financial-reports

City of Salinas, FY 2019-20 Adopted Operating Budget Document. Retrieved from: https://www.cityofsalinas.org/sites/default/files/departments_files/finance_department_files/adopted_operating_budget_fy19-20.pdf

City of Salinas, Basic Financial Statements. (2017) Retrieved from: https://www.cityofsalinas.org/sites/default/files/departments_files/finance_department_files/2017_city_of_salinas_financial_statements.pdf

City of San Bernardino, Chapter 9 Bankruptcy. (n.d.). Exhibit 33 - Resolution No. 2016-68 - Adopting A Transition and Release Agreement Between the City of San Bernardino and the San Bernardino Fire Management Association. Retrieved from http://www.ci.san-bernardino.ca.us/civica/filebank/blobdload.asp?BlobID=23356

City of San Bernardino, Financial Reports. (2003). Fiscal Year 2002-2003 Comprehensive Annual Financial Report. Retrieved from http://www.sbcity.org/civicax/filebank/blobdload.aspx?BlobID=14123

City of San Bernardino, Financial Reports. (2004). Fiscal Year 2003-2004 Comprehensive Annual Financial Report. Retrieved from http://www.sbcity.org/civicax/filebank/blobdload.aspx?BlobID=14122

City of San Bernardino, Financial Reports. (2005). Fiscal Year 2004-2005 Comprehensive Annual Financial Report. Retrieved from http://www.sbcity.org/civicax/filebank/blobdload.aspx?BlobID=14121

City of San Bernardino, Financial Reports. (2006). Fiscal Year 2005-2006 Comprehensive Annual Financial Report. Retrieved from http://www.sbcity.org/civicax/filebank/blobdload.aspx?BlobID=14120

City of San Bernardino, Financial Reports. (2018). Fiscal Year 2017-2018 Annual Financial Report. Retrieved from http://www.sbcity.org/civicax/filebank/blobdload.aspx?BlobID=27223

Christie, J., (2012, July 3). How Stockton went broke: A 15-year spending binge. Reuters. Retrieved from https://www.reuters.com/article/us-stockton-bankruptcy-cause/how-stockton-went-broke-a-15-year-spending-binge-idUSBRE8621DL20120703

Cabannes, Y. (2014). Contribution of Participatory Budgeting to provision and management of basic services. London: IIED. Retrieved from http://pubs.iied.org/pdfs/10713IIED.pdf

Roman, A. V. (2016). A Financial Crisis Is a Political Crisis First: How Politics Trumps Sound Fiscal Management - A Case Study of the San Bernardino Bankruptcy. American Bankruptcy Law Journal, 90, 677-697.

Greenhut, S., (2018, June 12). Formerly bankrupt Stockton is fiscally healthy again, but offers warning to others. California Policy Center. Retrieved from https://californiapolicycenter.org/formerly-bankrupt-stockton-is-fiscally-healthy-again-but-offers-warning-to-others/

San Bernardino County, County Administrative Office, Finance and Administration, Budget (n.d.). 2014-2015 Adopted Budget. Retrieved from http://cms.sbcounty.gov/Portals/59/Content/2014-2015/2014-2015-0-CountyAdopted.pdf

San Bernardino County, County Administrative Office, Finance and Administration, Budget (n.d.). 2016-2017 Adopted Budget. Retrieved from http://cms.sbcounty.gov/Portals/59/Content/2016-2017/2016-17-Adopted-Budget.pdf

San Bernardino County, Elections Office of the Registrar of Voters, Voter Turnout Statistics (n.d.). Retrieved August 10, 2019 from https://www.sbcountyelections.com/Elections/VotingHistory.aspx

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San Bernardino County Fire, Budget (2019). FY 18/19 Recommended Budget. Retrieved from https://www.sbcfire.org/Portals/58/Documents/About/18-19_Recommended_Budget.pdf?ver=2018-08-16-122826-893

U.S. Census Bureau (2018). QuickFacts. Retrieved from https://www.census.gov/quickfacts/fact/table/salinascitycalifornia,sanbernardinocitycalifornia/PST045218

U.S. Census Bureau (2018. )QuickFacts. Retrieved from https://www.census.gov/quickfacts/fact/table/fresnocitycalifornia,sanbernardinocitycalifornia/PST045218