Opinion: Is It Time for the City of Pacifica to Start Thinking About the Unthinkable—Bankruptcy?

By Todd McCune Bray, Riptide Correspondent

A declaration of bankruptcy by the City of Pacifica may not be a bad thing. I'm researching what it might mean for our town (procedurally) to go through a Chapter 9  bankruptcy (with the blessings of the Tribune), but given our current financial circumstances, choosing a Chapter 9 bankruptcy may be a really smart thing to do. While there are issues of resident and business flight, in this economy that is doubtful. The most interesting aspects of a Chapter 9 bankruptcy are court-appointed time to restructure debt and commitments to things like our pension liabilities, coupled with the protection of the federal government against seizure of city-owned assets from creditors.

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Comments

[Lionel Emde]

Caltrans' plan to create a dragstrip between Vallemar and Rockaway will only kill business. I've been here long enough to have seen what the freeway that ends in Sharp Park did to Pacifica; it tore it asunder, never to be mended. And now it's crumbling.

Where are all these hippies, Steve? I haven't seen one in years. I think maybe up in Mendocino County?

[Steve Sinai]

You want to know why Pacifica is in so much trouble? Read Bill Collins' opinion piece about Highway 1. Too many hippies, for too many years, doing everything they can to quash whatever might improve Pacifica's economic infrastructure.

[Kathy Jana]

It's time to evaluate the costs and benefits of partnering with other cities for shared services for every position in the city's budget.

[Lionel Emde]

Stockton's city manager called that city's finances a "Ponzi scheme." I found that jaw-dropping coming from a high city official, but there you are.

Pacifica is smaller, but on the same path. A source told me that Millbrae, which has already outsourced its police force to the county sheriff's department, recently held a staff meeting at which the city told staff that there is a $7 million shortfall that will have to be addressed through further cuts, layoffs, and furlough days.

The recent CalPERS change in actuarial assumptions for investment returns from 7.75 percent to 7.5 percent is going to mean a big hit for cities and special districts like our water district. That much more will have to go toward pension payments, now.

There isn't much time left, people.

[Bankrutpcy Attorney]

Todd, you have been saying all along that the city has enough revenue. Now you say it is bankrupt and should file Chapter 9?

Do you know that having enough revenue and bankruptcy are a long, long way apart?

[todd bray]

Additional reading regarding AB 506, which was drafted in direct response to the 2008 Vallejo bankruptcy filing.

http://www.publiclawgroup.com/wp-content/uploads/2011/12/Executive-Summary-of-AB-506-Bankruptcy.pdf

[todd bray]

Wonderfully informative Larry. Thank you for commenting.

[Larry Rosenstein]

Last October, the governor signed AB 506, which imposes new requirements on municipal bankruptcies, which include mediation with creditors/unions/etc. and a declaration that the city will be unable to pay its obligations within 60 days. Although Pacifica has its financial problems, they aren't to the point where it cannot pay its bills. (That could come to pass in the future, if things don't improve.) More info here: (http://blogs.sacbee.com/capitolalertlatest/2011/09/bankruptcy-bill-passes-assembl.html

As an example, you can see what Stockton has done to meet the requirements of AB 506 here: http://www.stocktongov.com/government/departments/manager/pubInfo.html and the "Fiscal Condition Update" makes for interesting reading. There were bookkeeping errors that turned a slight surplus for 2010-11 to a $6 million deficit, and it projects an $8.7 million deficit for 2011-12, and a best-case deficit of $20 million for 2012-13.

[todd bray]

What Lionel says! Starting, of course, with a REAL finance director person.

[Lionel Emde]

Since there isn't much time left, as witnessed by Todd taking this step of researching a really awful alternative, here's what I think should happen:

A. Hire a finance director, one with experience in municipal finance, after eliminating the "Director of Administrative Services" position and re-creating an HR director position.

B. As is the case in Stockton, the finance director should have carte blanche in looking at ALL of the city's finances, and auditing anything he or she desires to.

C. This new finance director would issue a report on the overall financial situation and make recommendations for the City Council.

D. The City Council should issue a call to the public for suggestions and/or ideas to either raise new revenues or cut expenses. This should be an open, unmanaged process, in which the public is heard loud and clear.

E. If it appears that cutting payroll is the only solution that will generate the amount of savings necessary for our survival as an independent municipality, a request to the bargaining units to reopen existing contracts should come from the council forthwith.

I've said repeatedly that there isn't much time left, and I see no indication of any federal financial-aiding cavalry riding over North Peak, nor any halting of the housing bubble deflating, and further reducing property tax revenues.