WHY EVERY CITY IN CALIFORNIA IS BROKE!!!
Oakland $19 million deficit, Santa Ana $14 million deficit, Vallejo still broke, Antioch will file bankruptcy if they don’t increase sales tax, City of Los Angeles $245 million budget gap, Lamorinda schools are facing a budget deficit in the upcoming school year, and San Diego $47 million shortfall. All these cities are BROKE!!!! All these cities are projected to have shortfalls not just for this year but for the next upcoming years!!!!
What is crazy about it is that these are only the cities that have admitted it in the last month!!! There are going to be more cities, school boards, counties and, public works who are going to come out with more news that they are BROKE!!!!
Why all these cities are BROKE??? Because of the guarantee promises that they gave their workers and the changes that CalPERS; the people who are responsible for making sure the money is there for its retirees made.
The change that they made is on the rate of return promise that they made. CalPERS lowered the rate of return they were expecting from their investments from 7.5% to 7%. The reason being is because they said they cannot get that rate of return anymore. Despite this huge stock market and real estate boom we’ve had in the last 8 years.
Since CalPERS had to lower their expectation cities are having to come up with more money to cover the promises that they gave to their employees.
Cities have 3 ways to come up with the money.
- Increase in tax fees: Watch for parking tickets, real estate transactions fees and a whole bunch of other fees with doing business in cities and counties that you are doing business with. They are going to raise taxes on the people who have the money, property owners and people who buy things with the use of sales tax.
2. Cuts in services: We will see more libraries closing early. Schools not having adequate supplies to educate our kids. Roads will be eroding more without anybody fixing them. Our parks will not be mowed or trash picked up. The police will not come out when you call 911. (Wait that is already happening in Oakland. LOL).
3. Borrow the money: Cities can borrow the money by issuing bonds. They can borrow the money and pay interest on it for a long period of time. This can work for short periods of time but mounting a whole bunch of debt can leave you broke for the long term as you can only pay interest. This may be a great idea for politician because when you have to finally have to pay that’s when people will finally notice (a perfect example is the Oakland Colosseum bond for the Raiders)
Am I blaming the employees and retirees from these cities? No!!! The cities agree to it. I would take every last cent that they promise me but as a retiree from one of these entities I know it will eventually have to end. So I better die before it happens or save a pretty penny for a rainy day.
If you are a citizen in the state of California there are a few things you can do.
1. Be careful where you live. Before moving to a certain city or town find out the financial situation of the city. If the city is Broke!!! Get ready for higher taxes and cuts in services.
2. Be careful where you buy stuff. Cities will raise their sales tax and one city may have a lot higher sales tax than the other. It may be smarter to go to the next city over to purchase items if the sales tax is less.
3. Be flexible. If a city is having issues you want to be able to move to another place in the drop of a dime. So be prepared
4. Stop deferring your taxes. A lot of people only put money in their 401(k), 403b and 457 plans and that’s it. All that money will be taxed later. The state of California is broke too and what is different about the state is they have the power to raise income taxes. So if we know taxes will go up why defer them. Look for avenues that are tax efficient and possibly tax free.
I hope everybody gets prepared for this next upcoming wave of cities being BROKE!!!!
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President/CEO Matthews Financial & Insurance Solutions