A Fox News special on budget problems facing state and local governments highlighted the case of bankrupt San Bernardino, California, and placed blame for its problems on public-sector workers and their unions. In fact, San Bernardino's finances were devastated by the recession -- the same factor that's hampering state and local budgets across the country.
Fox Pins San Bernardino's Bankruptcy On Unions, Pension Costs
Fox's Baier Introduces Segment On San Bernardino's Bankruptcy By Blaming “Public-Sector Unions.” Host Bret Baier summed up the theme of the special when he introduced a segment by saying, “You've heard why many fear public-sector unions could bankrupt cities and states. It's happening right now in California. Let's take a trip down Route 66.” [Fox News Reporting: Cities Going Broke, Fox News, 8/10/12]
After Recession, San Bernardino's Economy Was One Of The Hardest-Hit
Wash. Post's Meyerson: Collapsing Home Prices, Property Tax Revenue, And Sales Tax Revenue Best Explain What Happened To San Bernardino. In a Los Angeles Times op-ed, Harold Meyerson wrote that “the median home value in San Bernardino County dropped a mind-boggling 65.6%” between 2006 and 2009 -- and it hasn't risen much since then. Property tax revenues have declined by one-sixth and sales tax revenues have declined by 14 percent. “It's these numbers,” Meyerson writes, “not political chicanery or wage-and-pension rigidity ... that best explain what happened” to San Bernardino. [Los Angeles Times, 7/25/12]
Meyerson: San Bernardino Has Severe Unemployment, Third-Highest Foreclosure Rates In The Country. In the aftermath of the housing collapse, San Bernardino's unemployment rate sits at 15.9 percent - 354th out of 372 U.S. metropolitan areas. With respect to foreclosure rates, the Riverside-San Bernardino-Ontario area has the third highest of the 372 metropolitan areas. [Los Angeles Times, 7/25/12]
CNN: State-Level Budget Changes “Stripped Locales Of Hundreds Of Millions In State Funding.” CNN notes that California's state government “made changes to vehicle tax money and redevelopment agencies that stripped locales of hundreds of millions in state funding.” [CNN, 8/2/12]
CNN: “Some $10 Million To $16 Million In Annual Revenue Has Evaporated In Recent Years.” A report issued in early July by Andrea Travis-Miller, interim city manager for San Bernardino, said that reserve funds were depleted and that the city has lost between $10 million and $16 million in annual revenue. [CNN, 8/2/12]
State And Local Revenues Nationwide Collapsed After The Recession And Haven't Recovered
CBPP: State Budget Problems “Result Principally From Weak Tax Collections” Because Of The Recession. From a Center on Budget and Policy Priorities report titled “States Continue to Feel Recession's Impact”:
As a new fiscal year begins, the latest state budget estimates continue to show that states' ability to fund services remains hobbled by slow economic growth. The budget gaps that states have had to close for fiscal year 2013, the fiscal year that begins July 1, 2012, total $55 billion in 31 states. That amount is smaller than in past years, but still very large by historical standards. States' actions to close those gaps, in turn, are further delaying the nation's economic recovery.
The budget gaps result principally from weak tax collections. The Great Recession that started in 2007 caused the largest collapse in state revenues on record. Since bottoming out in 2010, revenues have begun to grow again but are still far from fully recovered. As of the first quarter of 2012, state revenues remained 5.5 percent below pre-recession levels, and are not growing fast enough to recover fully soon.
The report included the following graph depicting the “largest state budget shortfalls on record”:
[Center on Budget and Policy Priorities, 6/27/12]
San Francisco Fed Analysts: “State And Local Tax Revenue Essentially Collapsed” During Recession. A June 2010 report by two economic analysts at the Federal Reserve Bank of San Francisco stated:
The deep recession placed a severe strain on state tax revenue. Figure 1 shows real state and local tax receipts growth and real GDP growth from 1970 through 2009. As GDP declined sharply, state and local tax revenue essentially collapsed. In fact, at the worst point in the recession, real state and local tax receipts fell over 10% on a year-over-year basis. While tax revenue always declines or grows more slowly during recessions, the fall during the latest recession was the most severe since at least 1947, when these data began to be collected. Furthermore, reports from states on April tax collections, the largest tax revenue month for most of them, paint a gloomy picture for 2010. Many states report that tax receipts fell short of forecasts, further widening budget gaps.
The Federal Reserve Bank of San Francisco report provided the following chart showing the effect of a decline in real GDP on state and local tax receipts:
[Federal Reserve Bank of San Francisco, 6/28/10]
NY Times: Survey Showed Cities “Bracing For ... Their Fifth Straight Year Of Declining Revenues.” The New York Times reported on a 2011 survey from the National League of Cities that showed cities are struggling to cope with years of revenue declines resulting from the recession:
Nearly a third of the nation's cities are laying off workers this year. More than half have canceled or delayed infrastructure projects. And two out of five have raised their fees.
The catalog of service cuts and fee increases comes as America's cities are bracing for what they expect will be their fifth straight year of declining revenues, according to a survey of city finance officers to be released on Tuesday by the National League of Cities.
One of the main culprits is the property tax, which many cities and local governments rely on heavily. Property tax collections, which are usually quite resilient, are projected to fall by 3.7 percent this year -- their second year in a row of declines -- as tax assessments belatedly catch up with the lower property values left behind by the battered real estate market. Sales tax collections are projected to be slightly higher this year, but income tax collections are projected to be slightly lower, as unemployment and lower wages take their toll in many places.
“For cities, the collective impact of property values continuing at levels far below their 2007 peaks, consumer spending slowing, consumer confidence eroding and markets possibly entering a double-dip recession is the worst since the Great Depression,” according to the survey, a copy of which was obtained by The New York Times. The report raises the possibility that “lower property values and declining sales may portend something entirely new, a 'new normal.' ” [The New York Times, 9/27/11]
And Public Worker Pensions Are Not The Cause Of Governments' Fiscal Problems
Krugman: Claim That Pension Obligations Would “Bankrupt All State And Local Governments” Is “Mainly A Creation Of Right-Wing Propaganda.” In June 2011, Nobel-prize winning economist and New York Times columnist Paul Krugman noted that the “financial position of public employee pension funds [is] much better” than it was since the financial crisis. He continued: “But that crushing pension deficit, which everyone knew was going to bankrupt all state and local governments? Mainly a creation of right-wing propaganda. Are you surprised?” [The New York Times, The Conscience of a Liberal, 6/10/11]
CBPP: “Long-Term Pension Shortfalls Are Not The Cause” Of Current State Government Fiscal Problems. The Center on Budget and Policy Priorities stated: “State economies and budgets continue to struggle because of shrunken revenues and rising needs. The long-term pension shortfalls are not the cause of the current state fiscal problems, and addressing them need not overwhelm state and local budgets now or reduce states' ability to recruit and retain a high-quality workforce.” [Center on Budget and Policy Priorities, 5/12/11]
Center For Retirement Research: Pension Plans Accounted “For Only 3.8 Percent Of State And Local Spending.” A 2010 study by Boston College's Center for Retirement Research found that in 2008, pensions accounted “for only 3.8 percent of state and local spending.”
The Center for Retirement Research's reported included the following graph:
[Center for Retirement Research, October 2010]
McClatchy: “There's Simply No Evidence That State Pensions Are The Current Burden To Public Finances That Their Critics Claim.” McClatchy Newspapers, citing the Center for Retirement Research, reported that “there's simply no evidence that state pensions are the current burden to public finances that their critics claim.” [McClatchy Newspapers, 3/6/11]
CBPP: Claims That Pensions “May Cause Localities To Declare Bankruptcy ... Overstate The Fiscal Problem” And “Fail To Acknowledge That Severe Problems Are Concentrated In” Just A Few States. A CBPP report on misunderstandings regarding public pensions explained that claims that pension obligations are unmanageable and will result in bankruptcy “overstate the fiscal problem” and “fail to acknowledge that severe problems are concentrated in a small number of states.” [Center on Budget and Policy Priorities, 1/20/11]