Andy Kessler, author and former hedge fund manager, posted an interesting opinion piece yesterday on WSJ.com titled "The Pension Rate-of-Return Fantasy."  He discusses some of the issues faced by municipalities regarding pension liabilities and questions the rate of return assumptions used to determine liabilities.  An informative read.

Links:
WSJ Opinion Piece:  
http://online.wsj.com/article/SB10001424127887324100904578403213835796062.html?

Andy Kessler's website:  http://www.andykessler.com

If you are following the pension crisis in California, here's a link to a Reuters special report on the San Bernardino bankruptcy:  http://www.reuters.com/article/2012/11/13/us-bernardino-bankrupt-idUSBRE8AC0HP20121113

The article identifies a host of issues that doomed San Bernadino, including:

• Dysfunctional city government
• Financial mismanagement
• Murky accounting disclosures
• Housing market crash
• Overly-generous compensation and retirement packages to fire and police employees
• Overly-generous pension benefits
• Investment bankers facilitating the use of pension-obligation bonds
• Influence of unions on city council members and council votes on pay and benefits

The article says no single element caused the bankruptcy but all contributed.  It's an interesting read and a cautionary tale of conflicts of interest and fiscal mismanagement.

Each election, I compare the endorsements of the Chamber of Commerce, Democratic Party and Republican Party for the California and San Francisco propositions.  In some cases all three of these organizations agree on a ballot measure.  

Here's a summary of the endorsements for San Francisco propositions:

Links to SF sites:
www.sfchamber.com
www.sfdemocrats.org
www.sfgop.org

Here's a summary of the endorsements for California propositions:

Links to CA sites: 
www.calchamber.com
www.cadem.org 
www.cagop.org

The article "California Muni Bankruptcies a Growing 'Disease,' Kotok Says" explores the difficulties encountered by California municipalities trying to meet their financial obligations in an environment of increasing costs and declining revenues.  According to the article, the California city of Atwater, with a population of 28,000 located in California's central valley, is about to declare a fiscal emergency, which is the first step towards declaring municipal bankruptcy.  Here's a link to the article:  http://www.sfgate.com/default/article/California-Muni-Bankruptcies-a-Growing-3916615.php

There's a good op-ed piece in today's SF Examiner on the recent bankruptcies by California cities.  In "City bankruptcies ignite finger-pointing frenzy," the viewpoints of the political left and right are explored, and the impact on pensions in a bankruptcy proceeding is examined.  Here's the link:   
http://www.sfexaminer.com/opinion/op-eds/2012/08/city-bankruptcies-ignite-finger-pointing-frenzy 

The recent Bloomberg article "Police Chief's 204,000 Pension Shows How Cities Crashed" is a look at how some California cities are struggling with the costs of generous pension packages.  The example given is that of a former police chief of Stockton, CA who was on the job for less than three years and now receives an annual pension of more than $204,000, which is paid even though this person now has another job.  Link to the article:  
http://www.bloomberg.com/news/2012-08-01/police-chief-s-204-000-pension-shows-how-cities-crashed.html

As expected, San Bernadino, California has filed for municipal Chapter 9 bankruptcy.  San Bernadino is the third California city to file for bankruptcy this year, after Stockton and Mammoth Lakes.  There are several other California cities that have significant unfunded pension liabilities and are viewed as candidates for future bankruptcies, including Fairfield, Inglewood, Pomona and Compton.  Other cities have declared fiscal emergencies, including La Mirada, Culver City and Stanton.

Link to my prior post on San Bernadino, which discusse:  
http://www.allenlatta.com/1/post/2012/7/san-bernadino-to-file-bankruptcy.html

Links to articles:
http://www.bloomberg.com/news/2012-08-02/san-bernardino-california-files-for-bankruptcy-protection-2-.html
http://latimesblogs.latimes.com/lanow/2012/08/san-bernardino-officially-files-for-bankruptcy-protection.html 
http://www.timesheraldonline.com/news/ci_21198822/struggling-california-cities-including-fairfield-looking-tax-hikes 

Two California cities, Stockton and Mammoth Lakes, have filed bankruptcy in the past several weeks.  Another California city, Vallejo, recently emerged from bankruptcy.  San Bernadino has authorized a bankruptcy filing.  In the New York Times article "Bankruptcy in California Isn’t Seen as a Trend," the bankruptcies of these California cities isn't having a big impact on the municipal bond market and is not seen as a national trend.  The issues confronting California cities include falling revenue, fiscal mismanagement (or over-optimistic financial planning), and rising pension and healthcare costs.  Here's the link:  http://www.nytimes.com/2012/07/13/business/bankruptcy-in-california-isnt-seen-as-a-trend.html?_r=2 

San Bernadino, California, has voted to file for bankruptcy.  San Bernadino, a city of roughly 210,000 residents, is located about 65 miles east of Los Angeles.  It will become the third California city to file for bankruptcy this year, following Stockton and Mammoth Lakes.  According to the city's report on the problem, the insolvency is due to a variety of issues including:

• Accounting errors
• Deficit spending
• Lack of revenue growth; and 
• Increases in pension and debt costs.

Links to articles on the bankruptcy:

San Bernadino Sun:  http://www.sbsun.com/ci_21044462
Los Angeles Times:   
http://latimesblogs.latimes.com/lanow/2012/07/san-bernardino-bankruptcy-only-150k-bank-accounts.html 
Reuters:  http://www.reuters.com/article/2012/07/11/us-sanbernardino-bankruptcy-idUSBRE86A05320120711 

Link to the budget analysis report by the City of San Bernadino:  
http://www.ci.san-bernardino.ca.us/civica/inc/displayblobpdf2.asp?BlobID=13757 

Stockton, California's 13th largest city with a population of 290,000, yesterday filed for Chapter 9 bankruptcy protection.  Stockton is the largest city by population in the United States to file for bankruptcy, but the 2011 bankruptcy filing by Jefferson County in Alabama is the largest municipal bankruptcy in terms of debt outstanding.

Here are links to articles on the bankruptcy:
Reuters:  
http://www.reuters.com/article/2012/06/29/us-stockton-bankruptcy-idUSBRE85S05120120629 

San Francisco Chronicle:  
http://www.sfgate.com/news/article/Stockton-bankruptcy-filing-makes-history-3671895.php 

Here's a link to my prior post on Stockton:  
http://www.allenlatta.com/1/post/2012/06/stockton-is-on-the-verge-of-bankruptcy.html