It has been widely reported that several California cities have entered bankruptcy in the last two years, or are rumored to be in tight financial circumstances.  The reporting of this comes against the backdrop of continued press attention to the very real financial straits of the California state government.  Reuters recently published an in-depth report about the bankruptcy in San Bernardino, California, which serves as a case study of a city with ineffectual political leadership struggling to cope with the toughest financial challenges of our time.  The Reuters report can be found here and occasions the observations below:

  • There is no overall “trend” toward fiscal insolvency or bankruptcy.  It is not an infection that is spreading among local governments. It is a symptom of the fiscal stress imposed on local government by the Great Recession. As such it is true that some states have been particularly hard-hit by the real estate asset contraction in the United States (especially California, Nevada, Arizona and Florida), and local governments in those states have had to work hard to cope. 
  • Each municipality is unique.  Those of us in the business know that this is true.  It is especially true in looking at the cities that have had to declare a fiscal emergency or file for bankruptcy.  A close review of the Reuters report about San Bernardino affords a good example of the complex interplay of factors at work in an individual setting  As noted in the report, Management Partners has analyzed that City’s circumstances on two occasions (before the Great Recession, in 2007, then in an update in 2010) and so is familiar with its details. The Reuter report is excellent and factually accurate.
  • Moody’s recently released a list of some 30 California cities that it identified as being financially stressed.  While some are indeed struggling to work their way through the effects of their external financial environment, the inclusion of others is ludicrous, a reality that detracts from the overall credibility of their initiative.  
  • Almost all local governments in California are led by professional managers who have done a fine job of guiding their governments through fiscal hard times. The notion that bankruptcy is a strategy or choice represents a fundamental misunderstanding of how local government works and the objectives of professional managers and the elected officials they serve. Moreover, most cities in the state that have been forced into bankruptcy have been led by excellent professionals as they work to recover their financial balance even while sustaining at least some minimal level of services to their residents – Vallejo, Stockton and the notorious city of Bell are all examples of such reforming leadership. 

These have not been easy times – and these have not been easy circumstances for most media to understand and report well.  The Reuters report on the single worst-led city in the state is informative, in our understanding accurate and revealing.  Journalism of this quality is unusual.  

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