Welcome to Oakland - The Model City

By: JD_Rosendahl

That title is straight from the City of Oakland’s official website.  I have to agree 100% with the City of Oakland, they are The Model City.  They are The Model of and for Insanity and stupidity.  They are The Model City for financial disaster. 

On a May 5th 2010 article (Oakland Faces Pension Costs, Higher Taxes) for the San Francisco Chronicle, Matthai Kuruvila reports, "The City of Oakland faces a budget short fall of $42 million, which will balloon to $58.7 million by June 2011.  The City of Oakland owes a back payment of $43 million towards the old Policemen and Firemen retirement system."  The Oakland teacher’s union is threatening to strike. Channel 4 new in  report, the City of Oakland just approval to send out pink slip notifications to  416 non teacher city workers.  As is the case with every municipality, the fiscal year ends June 30th, 2009.  It’s just a few weeks away.

This city faces all of these problems, and there official website promotes a feasibility study for a plan to build a new sports coliseum for $500 million for the Oakland Athletics (A's), a major league baseball team that already has a home in Oakland. That's the equivalent of someone being late on their mortgage payment, working part time, with massive credit card debts deciding to add a pool and deck to their backyard. Who does major improvements when their bankrupt? "Only the government". It's stupid, all in then attempt to save the baseball team from moving 10-30 miles down the road to Fremont or San Jose, or maybe just north to Sacramento.

I say, "Let them go" and focus on your financial issues. And let's review a little history. It wasn't that long ago, the L.A. Raiders moved back to Oakland and as part of that deal with the City of Oakland, major renovations to the existing Oakland coliseum (current home of the Oakland Athletics and Raiders) had to occur. As a Raider fan and local resident of the Greater San Francisco Bay Area, if I remember correctly, in that deal it was the City of Oakland that was left picking up the soap. A sports franchise asking for a new coliseum in these economic times only reflects they have no loyalty, and maybe they should leave.

There track record suggests they should set aside this insane idea of building a new coliseum at a time when the city is bankrupt by all measures. And along the lines of insanity, they have floated a new bill to raise taxes to cover a portion of their short fall. Hello, ever thought of cutting pay for all employees first. If the unions don't play ball, then go bankrupt. Please, do something real to correct the cost side of the equation, and then come to the tax payer with your hand out. hat is the only respective way about it.

And while we're talking insanity, May 5th 2010 the Oakland teacher's voted to authorize union to strike, and holding out for pay raises. Pay raises? Only a child who doesn't know better will ask for an allowance or an increase when their parents are broke. I say, "Let them strike". Let's see how the voters fall in on this one. I think voters are growing very tired of the children (unions) and their constant squeeze on the parent (tax payers).

Or at least, for every dollar more they give teachers, let's take back 5-10 dollars away from every Policeman and Fireman, so it's at least a net reduction in total compensation expenses for the city.

This issue only goes to show case a few trends I see growing in the future:

1. The budgetary nightmare of local and state governments hasn't even come close to blowing the lid off the problem, yet. This issue will continue for years, as the budget short fall will keep being an issue every year for several years to come. We are maybe in inning #2 of this issue. We haven't even gotten to the first relief pitcher. I expect it to be a complicated grinding process over a few years, because politicians don't have the back bone to go against one of their major funders (The Unions). At the same time, the unions are playing hard ball and using their financial might trampling over the best interests of the citizens they serve. It might be the biggest conflict of interest on the planet.

   I wrote my 5 predictions 2010, and one of those was another city would file Bankruptcy in 2010. At that time there was only two (Vallejo, CA and Prichard, AL). Recently, has gone the route of municipal bankruptcy. In my blog, I specifically identified Oakland as a candidate for 2010. Why? They have a history of fiscal mismanagement. In 2003, the Oakland school system was seized and managed by the state of CA because they were broke. On 5/5/2010, Channel 4 News reported, "they had to borrower $65 million back then to make payroll, and then arranged a $100 million line of credit". If a major US city goes the BK route, it will politically open the bankruptcy solution in a far greater manner for all cities and counties in the US. It's absolutely, one of the right tools to solve the issue. This trend is just beginning.

2. This issue has to be the next "WAGE DEFLATION" move in this country, something I've written about before. When you add up all of the employees at the roughly 8,000 municipalities, we have roughly 20 million Muni-workers, and a great number of them are going to lose their job and benefits, or see continued salary and benefit reductions. This little tidbit of good news is not factored into the economy or real estate values yet, nor is it an issue Wall Street is focused on either. It's coming; it's just a matter of how fast, and the only implications are negative.

   If major cities, and/or states go the insolvent or bankruptcy route, that too pressures wage deflation in a different way. It allows them to renegotiate pension payments to retirees. Yes, they are contractually obligated to make payments at certain levels, but if you're broke, you're broke. Hard to collect in this situation and the court system will most likely force the two parties to find a middle ground.

   Also, there are tons of Muni-bond holders that potentially will lose principal and an income stream. And since the majority of Muni-bond holders are wealthy. The voting majority isn't going to give a hoot; in fact they might call for it as part of the solution to soak the rich.

   The bankruptcy route, will also allow municipalities to restructure existing vendor contracts. Businesses serving government will see revenue streams take a hit, which pressure net incomes of those business, which pressures salaries paid to their employees.

3. Permanent Wage Deflation. A significant spin on the above idea is that if you're a Teacher, Fireman, Bus Driver, or Police Officer and you are laid, what skill set do you have to integrate back into the private sector?

   Zero. Whether you retrain or educate yourself for something else, the odds of finding something that pays 50% of your salary, over time, and benefits will be challenging especially for those abusing over time pay currently. You are going to take a big permanent hit to your income.

   If you're a junior member based on tenure of a public union this applies to you. Senior members can vote for layoffs versus compensation reductions and you're the loser. That's right, your so called brothers will give you the hosing of a lifetime. And, expect your union boss to support them to keep their union boss status. It won't be long before you hate the unions as much as the rest of us do.

4. Your taxes are going much higher in the future, something else I've discussed in the past as a risk of deflation, and something else not factored into the economy or real estate values, yet. We're never going to see the size of expense cuts and as quickly as needed to balance budgets, and the gap in part will come from some form of reduced services and higher taxes and fees. It's coming, and it too is just a matter of how fast, and the only implications are negative.

5. Finally, this issue should spurn one of the many ways we will see the ugly head of SOCIAL UNREST. We are going to see citizens back lash towards Muni-workers, especially union workers, and especially Policemen and Firemen who have the most egregious union contracts. It's coming, and it too is just a matter of how fast. This might be the only long term benefit of the budgetary issue, as hopefully it will lead to the eventual cure, an elimination of public unions all together via public anger.

And, while we're on the subject of pay and benefits, there's a great tool that will allow you to pull up most of the public employee's pay at a city, county, or state in CA. Here's the link. I will review some of the most ridicules compensation levels in The Model City. The very top paid individual is a Police Officer, not a Sergeant or Lieutenant or Chief, but just a Police Officer. Notice how ABUSIVE his overtime pay is compared to his salary.

This is the top of the pay list, and with exception to one Civil Engineer, its all Policemen, Fireman and one Ranger. Note: Not all cities in the state report all of their employees, so some might be missing on this list or other lists.

However, in the above table, there are 25 employees, and their average over time pay was $111,000, which did NOT include other pay. If this doesn't clearly highlight why unions are fighting so hard to keep things in tact nothing else will. Why isn't there a hard cap on over time pay and other pay? Something like a 10-15% cap. Let's get real; this part of the pay picture is out of control.

There are 60 employees reported in The Model City making in excess of $100,000, and the vast majority are Policemen and Firemen. Most of these public employees are wildly abusing over time and other income.

The quick and easy take away, is the total compensation levels for Policemen and Firemen are bankrupting The Model City. And the idiots who run the city are failing to get real and deal with the cause.

Absolutely, The City of Oakland is The Model City. It's one of Corruption and Insanity. You can expect The Model City to be a beacon of what's to come all over The Bubble State (California), City leaders of Oakland should read Standing Ovation: Suisun City, CA. They will clearly see how to run and manage the public's money with trust and respect.

The only recourse for citizens is to get angry and contact your local politicians. Tell them you support municipal bankruptcy, and/or voting out politicians tied to unions. It's time to go head hunting figuratively. It's either the union or the politicians, someone has to go, and maybe both.

Hope all is well.

By J.D. Rosendahl

www.roseysoutlook.blogspot.com

J.D. Rosendahl was a former stock broker/investment consultant (currently not licensed) before becoming a Commercial Banker for the past 14 years. He manages his family's wealth, helping them avoid the high tech bubble and the real estate bubble melt downs and preserving wealth.

© 2010 Copyright J.D. Rosendahl - All Rights Reserved
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