El Monte California Avoids Bankruptcy After Unions Agrees To Cuts

Amidst a big round of applause, El Monte California avoids bankruptcy after police union agrees to cuts.

The city averted bankruptcy Tuesday night after all four of its employee unions, including the Police Officers Association, agreed to cuts in benefits to help eliminate the city's budget deficit.

Though a round of applause spread through the City Council chambers after the last-minute announcement was made, many residents and staff members walked away from the meeting still frustrated by El Monte's dire financial situation.

"City departments are working with skeleton crews, and we are being forced to concentrate on essential services," acknowledged City Manager Jim Mussenden.

The council Tuesday approved a budget for the 2009-10 fiscal year, which began Wednesday, that includes massive cuts to city services and recreational programs. It also will result in the layoff of 100 employees and the closure of one of the city's four fire stations.

The cuts totaled $12 million - more than one-fifth the city's total $49.3 million budget.

The deficit is the result of falling sales tax revenues combined with retirement costs and deferred compensation benefits in employee contracts.

Sales tax revenue has been dropping since 2007 and fell an estimated $5.5 million last fiscal year alone. It is expected to continue falling in the coming year, despite a half-cent sales tax increase voters approved in November. Sales tax in the city stands at 10.25 percent, one of the highest rates in the state and country.

Employees agreed to forgo pay increases they were due starting Wednesday, accept a $200 lower contribution from the city for medical benefits, and, in some cases contribute 5 percent toward their PARS retirement accounts.

The non-police employees also agreed to continue through June 2010 the 10 percent cut in pay through furloughs they agreed to late last year.

In addition, upper management, including the city manager, assistant city managers, finance director, police chief and assistant police chief all agreed to continue the 10 percent cuts they accepted last year, and accept a $200 lower contribution from the city for medical benefits. Civilian management also agreed to contribute 5 percent of their salary towards their PARS retirement accounts and police management agreed to forgo their 4 percent pay increase due July 1.

No Reason To Cheer

El Monte solved nothing. The cuts were temporary and the city will soon be back in trouble.

The root cause of this mess is retirement costs and deferred compensation benefits in employee contracts. The union cuts did not solve the basic problem.

Note that the city sales tax is an excessive 10.25 percent, one of the highest rates in the country. What are El Monte taxpayers getting for their money? The answer is skeleton crews, longer emergency response times, a layoff of 100 employees, and the closure of one of the city's four fire stations.

All El Monte did was postpone the real problem for another day while city services degrade and the city sales tax remains excessive. This is no reason to cheer.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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