City Journal Autumn 2014

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Autumn 2014
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California

Steven Greenhut
Desperate Hot Springs
Another California city teeters on the edge of bankruptcy.
5 December 2013

In what may be the most embarrassing California-related headline to appear in a while, Reuters announced last month: TONY RESORT CITY MULLS BANKRUPTCY, BLAMING WAGES, PENSIONS. That supposedly “tony” city is Desert Hot Springs, on the northern edge of the Coachella Valley near Palm Springs. Though it’s certainly true that Palm Springs and many of its suburbs are booming resort and retirement meccas, Desert Hot Springs long ago picked up the nickname “Desperate Hot Springs.” It’s a magnet for parolees and poor retirees living in low-cost tract houses and trailers.

On November 19, the Desert Hot Springs city council declared a fiscal emergency, usually a precursor to bankruptcy. The city has $20 million in annual budgeted expenses and only $14 million in revenues. As is common these days, city officials blamed outside forces: the economic downturn, the housing bust, lagging development. The downturn has eased, though, and most California cities are recovering from the housing bust. And it’s no real surprise that developers shun the city, given that a Desert Hot Springs address is practically the kiss of death in the Coachella Valley.

Desert Hot Springs, in fact, went bankrupt once before—in 2001, after the city lost a lawsuit against a developer who claimed discrimination when officials stopped him from building a neighborhood of manufactured homes. The city’s crime problem grew so severe that Riverside County officials launched a military-style invasion. “Hundreds of law enforcement officers backed by armored cars and Black Hawk helicopters swept into the city . . . in a massive show of force that stunned the gangs, parolees and street thugs who had terrorized the community for years,” the Los Angeles Times reported in 2009. Crime has since fallen, thanks to a greater police presence and expansion of community anti-gang programs. But the city still struggles with persistently high unemployment and a generally impoverished population. In short, there’s nothing “upscale” about the place.

Now things could get even worse. Officials fear that cuts in the budget—70 percent of which goes to the police department—will undermine the progress made on public safety. But one need only look at the city’s salary schedule to understand what’s really going on. The average annual wage in the police department is $119,000 a year, with the average total compensation topping $164,000. And that doesn’t include the unfunded liabilities—the unaccounted-for costs to pay for generous retirement benefits. Wages for all categories throughout the city are astoundingly high, with many officials earning total-compensation packages well above $200,000 a year. The city manager’s salary and benefits top $300,000 annually.

The plight of Desert Hot Springs has prompted concern among California’s hardy pension reformers, who see it as a sign of things to come. But the state’s legislative leaders have mostly shrugged, perhaps because Desert Hot Springs, like other cities sliding into Chapter 9—Stockton, San Bernardino, Vallejo—happens to be on the economic margins. These economically troubled cities, the thinking goes, aren’t reflective of the state as a whole. But is that correct?

Leading the charge to get a statewide pension initiative on the November 2014 ballot is Democrat Chuck Reed, mayor of one of California’s wealthier cities, San Jose. Recently, Reed noted that San Jose’s police costs had soared in recent years, even as the city has significantly cut the police workforce. He blames this reduction in services on San Jose’s uncontrolled pension debt (the city’s pension-reform measure, which passed overwhelmingly last year, remains in legal limbo).

As they ignore cascading budget crises in California cities, the state’s unions have been ramping up their attacks on Reed and his measure. Assembly Speaker John Perez’s former spokesman, Steve Maviglio, lambasted Reed on behalf of a union-funded think tank—though he didn’t address any of the specifics of Reed’s measure. Instead, Maviglio dismissed the idea that pension reform is a bipartisan cause, pointing out that the measure enjoyed “right wing” financial support as well as the support of this “conservative” writer. “Right out of the gate,” Maviglio wrote, “the state’s leading Democrats blasted the proposal. And aside from Reed himself, not a single big city mayor—Democrat or Republican—joined Reed’s effort. In fact, one of the Democratic mayors that Reed initially had on board is expected to renounce his support.”

While the Democratic leadership opposes a measure that takes aim at one of its vital constituencies, a few serious Democrats are backing Reed—not because of some supposed right-wing conspiracy, but because they have enough foresight to see what’s happening to municipal services. California’s roughest cities are harbingers. “All of the cities that have gone into bankruptcy have different variables that have contributed to their problems,” said Jack Dean, vice president of California Pension Reform. “The one consistent theme that all of them have is high payroll and pension costs.” Unless those costs are reined in, Desert Hot Springs won’t be the last city to find itself in desperate straits.

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