General Manager’s Report, First Quarter of 2011

Bankruptcy Baloney

There’s been a lot of talk about bankruptcy in the City of San Diego in the last five years. Most of that talk, of course, was instigated by none other than Michael J. Aguirre shortly after he was elected City Attorney six years ago. Aguirre’s political agenda was simple—feed the public the most extreme and irresponsible rhetoric possible (facts be damned), and then portray himself as the only one capable of rescuing “the people” from the hole he had just told them they were in. Calling for the City to declare bankruptcy fit right into Aguirre’s approach, and thanks to a willing and hysteria-hungry local media, it proved to be a successful political strategy for some time.

But then Aguirre’s dismal litigation record (he was after all elected to be an effective attorney for the City right?) and his personal attacks and charges of corruption against anyone who dared disagree with him finally caught up to him. San Diego’s general public, business interests, labor interests, and even the local media grew tired of him and as a result Superior Court Judge Jan Goldsmith won a very lopsided victory for City Attorney in 2008. Aguirre quietly left the public stage, went back to private practice, and everybody got on with the business of actually trying to run the City.

But Aguirre is back. Perhaps he got bored or perhaps he couldn’t resist being out of the spotlight any longer. He started calling press conferences again. The local and national media once again found themselves unable to resist seeking out quotes from the most sensational interview in town.

And that means that the San Diego bankruptcy talk is back. No matter what the topic, Aguirre finds a way to make his personal crusade for bankruptcy become the center of the story. The online news website voiceofsandiego.org even called Aguirre the “bankruptcy apostle.” The national media has also caught on to the fun, so now anytime there is a story about the specter of a municipal bankruptcy in the USA Today or New York Times, Aguirre is quoted saying something to the effect of “don’t forget about San Diego—we’re bankrupt too!”

It would almost be funny if it weren’t doing so much direct and indirect damage to the City of San Diego.

For his part, San Diego’s actual City Attorney Jan Goldsmith has expressed his opposition to bankruptcy with equal vigor to Aguirre’s support. Goldsmith calls the bankruptcy talk “nonsense” and correctly notes that 1) the City is not insolvent (a somewhat important detail when it comes to bankruptcy filings!), 2) the City would not benefit from bankruptcy, and in fact the cost would exceed $100-200 million in legal bills, 3) it would result in years of legal haggling, public acrimony, and national embarrassment, and 4) there is no legal precedent whatsoever to change or discharge public-sector pensions through bankruptcy, which is the stated purpose of Aguirre and those who support declaring bankruptcy in the first place.

Goldsmith may not be the best ally of City employees, as he seems to spend an inordinate amount of his time trying figure out “legal” ways for the City to get out of its own promises, but on the topic of bankruptcy Goldsmith deserves kudos for resisting the politics of the day and forcefully telling it like it is.

The problem is that it’s not nearly as much fun for the media to quote people saying boring things like “bankruptcy is not an option.” For example, the Union-Tribune recently ran an incredibly misleading article (surprise!) about a bankruptcy filing in the City of Prichard, a small town outside of Mobile, Alabama. The UT article proclaimed that the “bankruptcy debate” in San Diego is “mirrored” by Prichard, and that “if Prichard successfully reduces its pension debt through its reorganization, pressure will likely grow in San Diego for a similar approach.”

Really? San Diego is the “mirror” of Prichard, Alabama and what happens there is applicable to our future? Prichard’s population is about 25,000 while San Diego’s is 1.2 million; Prichard is insolvent and hasn’t made a pension payment to its retirees since 2009, while San Diego is not insolvent, its pension fund has never missed a payment, and in fact SDCERS has $5 billion in assets in the bank; and Prichard has defaulted on countless other debts and has a long list of creditors demanding payment, while San Diego has never defaulted on a debt and has relatively high reserves and bond ratings compared to other jurisdictions in California. In fact by any demographic or financial metric, Prichard and San Diego are about as similar as New York and National City. For the UT to make a front page story out of a non-existent relationship is simply absurd.

But one of the problems with this type of media “reporting” is that intelligent people believe it. In fact, the above-referenced UT article and other media coverage has started to concern some of you. I have fielded more than a few phone calls and e-mails in the last few months from employees and retirees genuinely concerned that the City is about to file bankruptcy, or that what happens in a courthouse in Alabama will suddenly dictate what San Diego does next. It’s just not true. (By the way—and not that it matters much—a bankruptcy court in Alabama dismissed Prichard’s bankruptcy filing, which the UT dismissed as “a technicality.”)

Anybody who tries to guarantee you anything about the future when it comes to San Diego politics is probably a fool. But we can say with some certainty is that a bankruptcy filing by the City of San Diego is about the last thing a City employee or retiree should worry about. The impact of the bankruptcy talk is indeed something to fear and needs to be addressed, but there is simply no prospect of an actual bankruptcy filing in San Diego’s future.

Don’t get me wrong, the fiscal state of the City is not great to say the least: service cuts will continue to be made; the public has no interest in paying for their fair share of the services they receive; our City cannot rectify 30 years of underfunding pension obligations overnight; and pay raises for employees seem like a faraway dream.

But bankruptcy for San Diego? That is not reality—that is simply the political and rhetorical tool of people who have agendas that have nothing to do with actually moving San Diego forward. So while Mike “Bankruptcy Apostle” Aguirre runs through another cycle of media attention for himself, please stay focused on your job, on your family, and on your health, and leave the worries of bankruptcy to insolvent cities like Prichard.