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Bankrupt San Bernardino approves over $1 million in pay hikes

A concrete sign marking the city limits for San Bernardino, California is seen July 11, 2012. REUTERS/Alex Gallardo
A concrete sign marking the city limits for San Bernardino, California is seen July 11, 2012. REUTERS/Alex Gallardo

By Tim Reid

LOS ANGELES (Reuters) - The bankrupt city of San Bernardino, California, approved over $1 million in pay increases for police and firefighters despite claims it can barely make payroll, let alone afford the salary hikes.

Monday night's pay increases, for a city that appears before a federal judge again this week to plead for bankruptcy protection, are a result of its charter. It mandates that pay for safety workers must be tied to salary levels for 10 similar- sized California cities, all of which are wealthier than San Bernardino.

The bankruptcy of the city 65 miles east of Los Angeles is a national test case on whether the pensions of government workers take precedence over other payments in a municipal bankruptcy. It is a high-stakes issue for pension plans and their beneficiaries, and for Wall Street bondholders who lend money to governments.

Moves to have the city charter overturned, so the city can set its own pay levels, have failed to get the majority needed on the city council in the past year.

Council members opposing a charter change have received campaign contributions from police and fire unions in past elections. They argue that police and firefighters would leave San Bernardino if they were not paid wages similar to other cities.

In a largely symbolic vote because of the charter mandate, the council voted on Monday night to approve $156,841 in compensation for a few police and fire managers.

That followed a vote last week in which nearly $965,000 in pay increases for rank-and-file police and firefighters - again because salary levels for safety workers are set by a formula calculated on wage levels set by 10 other cities.

Most of those cities have tax bases and property values significantly higher than San Bernardino's - and none are in bankruptcy. Average home values in other California cities considered by the charter, such as Irvine or Pasadena, are three times San Bernardino's.

Most California cities also have the power to set salary levels for their own workers. Another California city currently in bankruptcy - Stockton - has the power to set wage levels for its safety workers.

San Bernardino filed for bankruptcy on August 1, citing a $46 million deficit for the current fiscal year and little leeway to meet day-to-day expenses, including payroll.

Fred Shorett, one of two council members to cast a symbolic "no" vote on the pay increases as a way to protest the city charter, said it was madness for the city to have wage levels tied to wealthier cities.

"This ties our hands during these very difficult times," Shorett said.

Pat Morris, San Bernardino's mayor, said during last week's vote that during the city's bankruptcy, it was "remarkably unwise" to be "on autopilot on our most expensive single item" - that is, police and firefighter pay.

A federal bankruptcy judge has yet to rule on the city's eligibility for bankruptcy protection.

The bankruptcy court proceedings are still in an early stage, with the city and its creditors - notably Calpers, the public employee retirement system and America's biggest pension fund - wrangling over the production of financial records. The next hearing is set for Thursday.

San Bernardino halted its twice-monthly pension payments to Calpers in August, an unprecedented step for a city. Calpers argues that it has primacy over other creditors in the bankruptcy, a claim Wall Street bondholders dispute.

(Reporting by Tim Reid, editing by Tiziana Barghini and Dan Grebler)

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