Adviser: Oakland Bankrupt Thanks to Pension Benefits

Friday, 07 May 2010 08:03 AM

By Dan Weil

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Experts say a wave of municipal bankruptcies may soon hit, and one expert says Oakland already is effectively belly-up, thanks to excessive public pension obligations.

That’s Mike Shedlock, a registered investment adviser at Sitka Pacific Capital Management in Sonoma, Calif.

“The party is over for Oakland, whether its city council is willing to admit it or not,” he wrote on BusinessInsider.com.

“As always, union contracts and pension benefits drove the city into the ground.”

Shedlock cites a San Francisco Chronicle story which explains that Oakland voters will likely face a November referendum for higher taxes to cut a $42 million deficit by 50 percent.

Even if voters approve the taxes, Oakland will face an even bigger budget crisis within months, the Chronicle reports. Soaring retirement costs will widen the city's projected deficit to $58.7 million by July 2011.

The city’s biggest problem is its overly generous Police and Fire Retirement System (PFERS), Shedlock says.

He notes that in the Chronicle story, City Administrator Dan Lindheim acknowledges, "PFERS is locked in stone. It's impossible to change."

Says Shedlock, “That is one hell of an attitude to take when the city you are running is bankrupt.”

Oakland isn’t the only city in California that’s in deep financial trouble.

“Los Angeles is facing a terminal fiscal crisis: between now and 2014 the city will likely declare bankruptcy,” former mayor Richard Riordan wrote in a Wall Street Journal opinion piece.

© 2014 Moneynews. All rights reserved.

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