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Guest Opinion: Economic 'perfect storm' is brewing for local agencies

by Peter Carpenter

For many years I have been directly involved in local government agencies or in federal programs designed to support local and state agencies.

Never in that period have I seen such financial storm clouds as now appear on the horizon of local governments.

For the last eight years I have had the privilege and the responsibility of serving the citizens as an elected director of the Menlo Park Fire Protection District (which serves Menlo Park, East Palo Alto, Atherton and parts of San Mateo County) — one of the finest fire districts in the country.

Previously, I served as a Planning Commissioner in Palo Alto and, many years ago, as the federal official in the Office of Management and Budget who was responsible for coordinating all federal assistance to state and local governments.

With falling property values yielding less property-tax revenues, falling consumer and business spending yielding less sales taxes, increased retirement costs (because CalPERS has suffered significant loss of capital in the current financial downturn), continued demands for well-above-average salary increases by public employees, and the governor declaring a financial emergency, local governments in California are facing a Perfect Storm.

Unless local governments act promptly to respond to these dramatic changes we will see more of them joining Vacaville and Rio Vista in being forced into bankruptcy.

Housing prices and hence property taxes will be depressed for at least another two years — just about everywhere except the Palo Alto area, it seems.

And if a lot of the current homeowners request reassessments the decreases will be dramatic.

Similarly consumer and business spending are forecast to be depressed for the next two years.

And CalPERS, which is obligated to continue to pay out fixed-benefit retirement payments and which has seen huge losses in its capital, can only turn to local governments to make up the difference.

And local governments have no choice but to pay what CalPERS will demand.

And while this is all happening local-government unions are continuing to ask for significant increases in both salaries and benefits.

The total labor costs for most local governments are between 60 and 80 percent of their total budgets. While California's local governments are blessed with very talented and capable employees, the current process of salary-and-benefit negotiation has gotten out of hand.

Local-government employee unions insist that the standard for setting their pay be that they be above the average of other public employees. But if everybody is above average then the average goes up very quickly.

While we have many superb employees working for local government, those employees should not expect to receive salaries and benefits that are inconsistent with those of the citizens whom they serve or that will bankrupt their employers.

And in most cases those inflationary-spiral labor agreements are being approved in secret without any public input or scrutiny.

As an elected member of the Board of Directors of one of the finest fire districts, what do I think should be done to respond to this Perfect Storm?

First, local governments need to recognize that there is a crisis and act now.

Second, they need to involve their citizens in a careful look at each of their programs to determine which programs are no longer affordable — however nice or special they might have been in better times, or even how worthy any single program might be.

Third, they need to plan now for hiring freezes, elimination of overtime, reduction in services, layoffs, renegotiated labor agreements and, in the extreme, bankruptcy.

Fourth, they should consider accelerating essential capital-improvement projects (the operative word is essential), as construction costs during this downturn will be substantially less than if the projects are delayed until the recovery begins.

Finally, they need to move the review and approval of new labor agreements out from behind the current wall of secrecy from which the public is excluded.

Once new labor agreements have been agreed upon by the negotiators then those agreements should be simultaneously submitted to both the union members and to the public that will bear the costs well before the city councils and special district boards meet in public session to vote on those agreements.

The Perfect Storm can be weathered but not by sunbathing on the deck.

Peter Carpenter is a longtime resident of the Midpeninsula who currently is a member of the Board of Directors of the Menlo Park Fire Protection District. He can be e-mailed at peterfcarpenter@gmail.com.

Posted by Leighton Read, a resident of Another Palo Alto neighborhood, on Dec 7, 2008 at 7:17 pm

Good points. As steps are being taken to provide much greater transparency in private sector finance,it is good to keep in mind the importance of transparency for high impact decisions in the public sector. A public right to comment on negotiated labor agreements before they are signed is most appropriate.

Posted by Ralph, a resident of another community, on Dec 7, 2008 at 10:03 pm

Whenever things get tough, the first thing that comes up is taking it out on hard working city employees. The last thing we need is to turn our union contract negotiations into a political football. Anyone reading these forums knows that there are legions of the "public" who like nothing more than to bash the meager pay and benefits that our hard working employees get. Think what this would be like during sensitive negotions. Nothign would get done with the demogogary.

You should try living on the pay that most city workers get around here. Can't do it. That leads to long commutes.

And we do get pensions and health care, but that's nothing compared to the stock option plans that many around here loades up their 401k's in the fat years.

If you want the good things that city workers provide, you have to pay for it. Simple as that.

Posted by Common Sense, a resident of the South of Midtown neighborhood, on Dec 8, 2008 at 6:22 am

Let's put it this way...

more taxes and more regulation leads to less businesses and employees..

leads to less income into all levels of govt....

leads to having to cut expenses.

Simple ..just like businesses and just like families.

Posted by Peter Carpenter, a resident of Atherton, on Dec 8, 2008 at 8:18 am

If public employees are being paid less than market conditions, including their very generous and guaranteed retirement benefits,why not have the labor agreements which have been negotiated in secret made public before those agreements are voted on by elected officials?

Secrecy is usually used to hide something which would not stand the light of public disclosure.

Posted by R Wray, a resident of the Palo Verde neighborhood, on Dec 8, 2008 at 9:18 am

The politicians are not about to renegotiate labor contracts; it will cost them union votes.

The government cannot make "capital" improvements; it doesn't produce anything. It's all expenditures paid by taxes and these expenses should be delayed during a recession.

Posted by Walter_E_Wallis, a resident of the Midtown neighborhood, on Dec 8, 2008 at 11:30 am
Walter_E_Wallis is a member (registered user) of Palo Alto Online

If the total employee cost is restrained to withing 10% of equivalent wage in private employment few would object. Given my druthers I would give government employees a choice between a union contract and civil service - not both - and voluntary unionism.

Posted by sv, a resident of the Barron Park neighborhood, on Dec 8, 2008 at 7:43 pm

Enhanced employee benefits are only sustainable if the economy does well, not if there is a continued recession. While everybody is entitled to get paid fairly, Palo ALto city employees must realize that many other cities are on their way to bankruptcy because of the expensive labor contracts. Good article.

Posted by Right to Work, a resident of the Palo Alto Orchards neighborhood, on Dec 9, 2008 at 6:10 am

I actually disagree with the statement that "everyone is entitled to be paid fairly"..fair is in the eye of the market. If someone doesn't want to work for a certain wage, s/he doesn't take the job..if s/he does want the job, s/he takes it.

That is the definition of "fair", not what some bureucrat somewhere decides is "fair".

I believe in the freedom to work. I would rather be free to work for less than not work at all because someone has decided the wages offered aren't "fair".

BTW, I like the "Report Objectionable Content" section at the bottom of these, but what happens if there is a report?