Tuesday, January 20, 2015

The Future of Cities

I told my family over dinner once, if America enters into bankruptcy, we're all moving to New Zealand. I'm a New Zealand permanent resident; so I can petition all my relatives for a green card if they needed one. My father looked at me and said, "You're talking all that crazy stuff, again." My mother said she left Korea to come to the best country. Why would we ever leave?

Well, I don't know much about the true state of the federal government, but I think I know the health of at least our city budget. This article is important because I'm going to forecast what's happening in the future for cities in California. So, even though Baldwin Park might not seem important to you, it represents what's going to happen in the future to all cities all over California - if not in America.

I predict Baldwin Park will go bankrupt in three and a half years or less. Baldwin Park has $6 million in reserves. What that means in fancy talk is that in the bank account, which Baldwin Park has, it has $6 million dollars sitting there. That sounds good, right? No, it's not enough to even pay the debts.

The biggest problem with cities and government agencies is that they've all become socialist powers. I explained it to a relative, who works for the government. He said, "How dare you accuse me of socialism?" I said, "Well - let's say that they can't pay your pension anymore. Should they cut your pension or should the City raise taxes?" He said, "Well, that's obvious. Raise taxes on people." Do you see the problem? All these people in government want us to take care of them for the rest of their lives, while they retire at the age of 50. I mean - that's unbelievable. Why should we be responsible for that?

Well - at any rate, going back to debt, Baldwin Park has $15 M in outstanding pension liabilities for the employees and another $18 M in outstanding pension liabilities for the police. In other words, that's $33 M and probably higher because it's a conservative estimate. What that means is that if every one retired today that worked for the City, the City would have to pay out $33 M, which it doesn't have. Remember, it only has $6 M. So, there's $27M left.

And on top of that, the City owes $60 M to the bank for all the useless projects its done - like the Baldwin Park Transit Center - a parking structure that has no value for the citizens. It was the biggest scam the City Council and Mayor pulled over the citizens. They borrowed all this money and grants. They voted to do this project at a low rate. Then they hired consultant friends and families. These consultants every year increased the project price of the parking structure. The friends and family gave cash kickbacks back to Council Members. And now we owe more money.

So, in total, Baldwin Park owes $93 M. $60 M has a 5% interest rate. I believe they pay $1-$2M out for the pensions a year. So, all in all, Baldwin Park is only paying off the interest on its debts. It's like they own one big credit card and never pay down the principal.

Here's what breaks the bank. There's a couple factors that can do this. One reason the feds keep the interest rates low, is for a financial crises like this. So, when Baldwin Park has to renew the loan after it expires, if the interest rate is higher at the time of renewal, that can break the bank. So, for instance, if it goes up to 8% instead of 5%, then the City has to pay out $4.8 M in interest a year versus the $3 M. That's a big difference. If every one retires once, that also breaks the bank because all the pension liabilities become due. That's already happened in some cities. Finally, a third way that the City goes bankrupt is my favorite one because I'm contributing to this one. Lawsuits, baby! The more the City has to pay out for being bad, like Desert Hot Springs did (it has a $10M judgment against it), the faster it goes bankrupt too. (I think Casas and I suing the heck out of Baldwin Park has put a target on the City; as many others are starting to sue too.)

So - what, you ask? Well, this is bad for every one because we won't have services in the end or we'll have worse services. The first people that the City will cut is the part-time employees, which it shouldn't do because these people are the least expensive and the most required to run a city. Really - they should cut the management team, like the Director of Parks and Recs, who under-performs and is overpaid at $200K a year. But that'll never happen because he launders money for the City.

In any event, the first sign that things are going South is the witch hunt for part time employees. Already, it appears that the Police Union want to go after the part time employees at Parks and Recreation because they aren't getting their raises. So, the whole trend is already put into motion.

So, I have two predictions for the future that I think I'm rather confident in:

1) I think AT LEAST ONE (maybe more) of the Directors of Public Officials will be charged with a crime this year.

2) I give Baldwin Park 3.5 years, maybe even less if more lawsuits come their way, before they file bankruptcy.

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