By Mark Gutglueck
It does not appear that San Bernardino Mayor John Valdivia and his political team will be able to convince acting City Manager Teri Ledoux to constrain her salary and benefit demands in keeping with the austerity strategy that exists as the county seat’s best and perhaps last hope of staving off another round of bankruptcy.
In 2012, after more than a decade of the city’s expenditures outrunning its revenues and city officials tapping ever further into its dwindling reserves, with $180 million in ongoing unfunded liabilities and a $49 million annual operating deficit, San Bernardino filed for Chapter 13 bankruptcy protection. Despite the best efforts of a succession of city managers – Fred Wilson, Mark Weinberg and Charles McNeely – the city had been unable to get a grip on its finances. A major factor was the expense represented by San Bernardino’s municipal employees, who had wrung from the city in collective bargaining session after collective bargaining session salaries and benefits that consumed virtually 90 percent of the city’s operating costs. This left the city inadequate funding to build new infrastructure and pay for the upkeep on its existing streets, bridges, curbs, sidewalks, water and sewer systems. Year upon year of deferred maintenance resulted in the crumbling of San Bernardino’s municipal groundwork, and an accompanying deterioration in the city’s appearance and its ability to deliver basic services. A consequence of that was that many of the city’s businesses took flight, taking with them the revenue they generated for the city, primarily through sales tax. This diminution of the city’s revenue base furthered the vicious cycle of decay.
The city’s mayor at the time of the bankruptcy filing was Patrick Morris. Being mayor of San Bernardino had once seemed to be the crowning achievement in a gilded career in which he had been a young prosecutor in the district attorney’s office who in 1964 and 1965 was entrusted with co-prosecuting Lucille Miller in one of the more infamous murder cases in county history, further illustrious achievements as a lead and supervising prosecutor in that office in the years thereafter, followed by his eventual elevation to the Superior Court, where he ultimately became San Bernardino County’s presiding judge before he retired. Ultimately, however, Morris’s mayoralty was undone by the financial challenges that consumed the city. San Bernardino was able to reacquire its financial footing only by the ignominy of taking refuge in U.S. Bankruptcy Court for five years, during which time Federal Bankruptcy Judge Meredith Jury consented to the city stiffing its creditors for over $350 million – an average of $70 million per year over that period. Morris chose not to seek reelection in 2013, and instead backed Carey Davis, a certified public accountant many hoped would be able to infuse the city with the fiscal discipline needed to right the city’s listing financial ship. Ultimately, however, Davis’s mayoralty proved a failed one when the city was unable to use the authority of the bankruptcy court to impose on the city’s employees, the employees’ unions and the California Public Employees Retirement System, which administers the city’s retirees’ pensions, the same terms applied to the city’s other creditors, vendors and suppliers of services. Whereas Judge Jury went along with paying certain classes of those to whom the city owed money, depending on the category, 60 cents on the dollar, 50 cents on the dollar, 40 cents on the dollar, 30 cents on the dollar, and in the case of those who had sued the city and prevailed in court, a mere single penny on the dollar for the first million dollars, lawyers for the city’s employee unions and for the state retirement system saw to it that the city’s employees and their retirement system were to be paid in full. Thus, Davis’s tenure in office would draw to a close in the same way it had begun, with the amount of money the city is paying to its employees and ex-employees in pensions exceeding the amount of money it takes in. After a single term in office that was lengthened by eight months when a new charter adopted by the city’s voters in 2016 changed the city’s election cycles from odd-numbered to even-numbered years, Davis in 2018 was defeated by Valdivia, who had been San Bernardino’s Third Ward councilman since 2012 following his 2011 election.
Though Valdivia is a Latino politician in an overwhelmingly Hispanic city, a city in which 72 percent of the population and 57 percent of those voting are Latino, he is distinctly different from the overwhelming number of Hispanic politicians in the Golden State, and one whom political analysts consider to be a contender to become the first Latino Governor of California since José María Flores shortly prior to California achieving U.S. statehood. While at present there are scores of Hispanic legislators in California and hundreds of Hispanic officeholders at the county and municipal level throughout the state, including more than two dozen with substantially greater name recognition than Valdivia who hold office in the four California counties with higher populations than San Bernardino County, nearly all of those are Democrats. Valdivia is a Republican, and one in whom a pronounced degree of momentum is accumulating.
Though historically California has leaned Republican more than Democratic, with 22 of its 40 governors since statehood being Republicans and its electoral college siding with Republicans in 23 out of 43 presidential races, since the mid-1990s the state has fallen into the ever firmer grip of the Democrats, with the lone exceptions being the governorships of Pete Wilson and Arnold Schwarzenegger. At present the governorship, the lieutenant governorship, the office of the state attorney general, the office of California secretary of state, insurance commissioner, and state superintendent of schools are held by Democrats, who simultaneously hold super-majorities in the California Senate and the Assembly. Nevertheless, many believe the Grand Old Party is just one charismatic Hispanic candidate away from making a vast turnaround in California. It is not unlikely that San Bernardino County, one of last bastions of Republicanism in the state, is the cauldron from which the savior of the Party of Lincoln might spring, if indeed such a savior exists. Just last year, Eric Negrete, a councilman in Victorville due to be rotated into the position of mayor of that 125,000 population city in the High Desert, was widely regarded as a potential statewide standard bearer for the GOP. But in his effort for reelection in November, a concerted push by the Democratic Party turned him out of office. Now, in San Bernardino, a city which faces numerous challenges but from which a candidate could potentially build a sterling reputation and a strong launching pad from which to rocket into higher, indeed much higher, office, Valdivia has come into ascendancy.
Were Valdivia to turn San Bernardino around where a widely respected Superior Court judge-turned-politician and a skilled financial manager before him failed, he could punch the first major and perhaps the crucial ticket he needs to engineer the train that will take him to his desired destination, 1526 H Street in Sacramento, the governor’s mansion.
Yet all that is way more easily conceived of than executed upon. Indeed, Valdivia at this point is much closer to seeing himself and whatever hopes he might have for a political career beyond what he has already achieved undone by the same forces that laid Davis and Morris low. The simple and undeniable reality is that San Bernardino, slightly more than two years after exiting from bankruptcy after five seemingly interminable years in that humiliating state, appears headed there once again. Without the protection of the bankruptcy court, the City of San Bernardino is no longer in the position of riding for free, contracting for goods and services that it in the end either does not pay for or receives for 20 percent or 30 percent of what it initially promised to pay. Heading into the 2018-2019 fiscal year, which ran from July 1, 2018 until June 1 of this year, city officials were buoyed by a general national, state and local economy that was looking up, as well as very good news, it seemed, at the immediate local level indicating that San Bernardino itself was experiencing positive economic growth, such that in the city the unemployment rate had decreased from 12.3 percent in 2013 to 5.1 percent in March 2018. With what they believed was warranted confidence, former City Manager Andrea Travis-Miller and then-Finance Director Brent Mason presented, and the city council approved, a 2018-19 operating budget of $166,357,066, of which $126,247,699 was accounted for in the city’s general fund and $40,109,367 in other funds that include special revenue, enterprise operations, and internal services. Travis-Miller and Mason said the city could afford all elements contained in the spending plan, which entailed a five percent increase in the general fund over the previous year, based upon $168.943,334 in anticipated revenue, allowing the city to net a surplus of $2,586,268, which could be salted away it its reserves. As the fiscal year progressed, however, both Mason and Travis-Miller could see that the city was not meeting the revenue projections assumed at the outset. It does not appear that Travis-Miller apprised the city council of the ongoing shortfall after it could be seen to be manifesting last fall, perhaps out of hope that the phenomenon was a temporary one that would abate before the end of the year. By mid-winter, however, it was clear that what was happening was not a quirk or an anomaly. As winter was making its transition to spring, the council was informed of the revenue downturn, by which time the amount of money the city was taking in for 2018-19 had been recalculated based upon actual performance. The prognosis was that before fiscal 2018-19 expired at midnight on June 30 of this year, not only would the city not realize the $2,586,268 surplus, it would actually receive roughly $11.2 million less than the $166,357,066 it was going to spend. Without fanfare, Mason departed.
A bit more drama followed with regard to Travis-Miller’s fate. To Valdivia and his team, which included newly elected First Ward Councilman Ted Sanchez and Second Ward Councilwoman Sandra Ibarra, Travis-Miller, with whom Valdivia was already somewhat on the outs, seemed to have been hiding from the mayor and council crucial information. To councilmen Fred Shorett and Jim Mulvihill, who counted themselves among Travis-Miller’s supporters, the misprojection of revenue was a mistake but not a capital offense. But the full revelation of the problem was alarming enough that at that point, in early April, another member of the council aligned with Valdivia but who had been reluctant to interfere with Travis-Miller’s operation of the city, Councilwoman Bessine Richard, joined with Sanchez and Ibarra in voting during a somewhat contentious closed session to suspend Travis-Miller. That move was opposed by Mulvihill, Shorett and another member of the Valdivia coalition, Councilman Henry Nickel, who had misgivings about precipitous action that might create a leadership vacuum at City Hall on a day-to-day basis and precipitate other unrecognized crises. The tie vote, however, opened the way for Valdivia, who as mayor does not normally possess voting power, to use his tie-breaking authority. He voted along with Sanchez, Ibarra and Richard to place Travis-Miller on paid leave. Assistant City Manager Teri Ledoux was appointed to fill in for her during her absence from City Hall.
There ensued more than a month of uncertainty, as Travis-Miller’s fate hung in the balance. Of moment was whether what was occurring had in any way chastened Travis-Miller and demonstrated to her who was in charge in San Bernardino. The question was whether Travis-Miller would come to accept that Valdvia had replaced Davis as the top political dog in the city and whether she was willing to get on board with the direction and program Valdivia had in store for the city. Whether Valdivia was himself prepared to keep Travis-Miller in place if she were to send out an unmistakable signal that she was ready to direct city staff to carry out Valdivia’s marching orders is unknowable at this point. Travis-Miller did herself no favors in trying to leverage what little power she had left by appealing to several of the city’s department heads to leave the city in the lurch and depart with her if she were to be terminated. Meanwhile, what was perhaps to have the most direct influence on whether Travis-Miller would stay or go was the special city council race in the Third Ward that was necessitated by Valdivia’s resignation from the council in December to take possession of the mayor’s gavel. In that race, Treasure Ortiz, a former city employee and Ward Three resident at the city’s south end was vying against Juan Figueroa. Ortiz was favorably disposed toward Travis-Miller, indeed on good terms with her. Were she to prevail in the contest which was scheduled for May 7, the votes Valdivia would need to cashier Travis-Miller would be hard to come by, though there was always the possibility that Valdivia could convince Nickel to come across and dispense with Travis-Miller’s services. Figueroa, on the other hand, a member of the San Bernardino Fire Commission, the Historic Preservation Commission, and the Community Development Citizens Advisory Committee, was a Valdivia ally. Valdivia was supporting him, using his political machine to encourage his own supporters to fund Figueroa’s campaign while transferring money from his own political war chest into that of Figueroa.
On May 7, Figueroa prevailed over Ortiz, and upon Figueroa’s swearing in, the city council featured four candidates believed to be solidly behind Valdivia – Ibarra, Richard, Sanchez and Figueroa – giving the mayor a virtual lock on policy decisions going forward. Nickel, faced with political irrelevancy by remaining as something of a counterbalance to Valdivia, returned to the fold, giving Valdivia unquestioned dominion over the city. The most immediate manifestation of Valdivia’s newfound grip on the political situation in San Bernardino was a vote by the council majority – Ibarra, Sanchez, Richard, Nickel and Figueroa – to hand Travis-Miller a pink slip. In taking that action, the council justified unloading Travis-Miller because of her ineffectual handling of the city’s finances.
Nevertheless, in relieving Travis-Miller of her command over city staff, the city council had yet to take any action toward averting the financial Waterloo that awaits the City of San Bernardino as surely as the Duke of Wellington awaited Napoleon Bonaparte in 1815. When the city council voted to finalize its 2018-19 budget in June 2018, Travis-Miller and Mason informed its members that while it appeared that San Bernardino would function under a balanced budget in what was then the immediately upcoming year, the financial modeling the city was doing showed that the projected revenues for 2019-20 set against the city’s projected expenditures would result in a $4.3 million deficit for that year; and that the modeling showed that the projected revenue to expenditure gap would continue to grow over the next three years until by 2022-23 the city was projected to run a $7 million deficit that year. Moreover, according to Travis-Miller and Mason, the city was on a collision course with its unfunded pension liability issue, such that the city, which was required to put up $20 million as part of its contribution to the California Public Employees Retirement System in 2018-19, would see that payment zoom to $40 million by 2028-29.
Prognostications, based on the best figures available, now indicate that the city, which ran an $11.2 million deficit in just concluded 2018-19, will see that annual deficit jump to $16 million by the end of 2019-20, $18 million to $19 million by 2020-21, $23 million to $24 million by the end of 2021-22 and $30 million to $33 million by the end of 2022-23. While those numbers are somewhat short of the $49 million operating deficit the city was faced with in 2012 just prior to its Chapter 9 filing, the city at present has reserves of less than $22 million. The only question at this point is whether, if the current trend continues, Valdivia will be able to stave off the city’s second bankruptcy filing until after his term ends in December 2022, after which he can have effectuated his exit as mayor so the bankruptcy filing does not occur on his direct watch.
Still, an even more dire reading of the leaves at the bottom of the teacup are that the city might not be allowed to get away with a second bankruptcy. Though Judge Jury indulged the city in the last go-round in federal bankruptcy court by allowing it to slide out from underneath more than $350 million it owed to all order of its creditors, Judge Jury or whatever judge who hears the next bankruptcy petition by the city may come to a determination that the city has demonstrated an inability to make the necessary financial reforms to maintain itself as a going concern, at which point the city’s only viable option will be to disincorporate.
With personnel costs in the city entailing in excess of 91 percent of the city’s budget and the prospect for a significant enough enhancement in revenue coming into the city to fill the void between the money it takes in and its actual expenditures being practically nil, Valdivia’s only hope for avoiding falling into the pit of political irrelevancy that swallowed Davis and Morris before him is to find a way to reduce those overall personnel costs by 25 percent. In recent weeks and months, the mayor, his former chief of staff, Bilal Essayli, and the rest of his political team have been seeking to set the stage for across-the-board 25 percent pay cuts within the San Bernardino municipal workforce. Last month, before Essayli’s departure, they did a test run, seizing upon the opportunity that the 2016 passage of a revamped charter, which Valdvia at that time opposed, presented them. In addition to a host of other reforms, the charter revision eliminated the city attorney and city clerk positions as elected offices. Using its authority at a specially-called meeting on June 11, the council voted 4-to-2, with Councilman Jim Mulvihill absent, to reduce City Attorney Gary Saenz’s pay rate over the final nine months he will occupy the elected city attorney’s position by 45.8 percent and to reduce City Clerk Georgeann Hanna’s pay during the same period by 59.2 percent. Thus Saenz, who formerly made $246,266 in total annual compensation as city attorney, has seen the amount of remuneration he is to receive between July 1, 2019 and March 31, 2020 reduced from $184,700 to $100,000. Hanna, who was receiving $171,466 in total annual compensation as city clerk, including salary, benefits and add-ons, is now seeing her compensation over the same nine-month span reduced from $128,600 to $52,500,
A critical element of Valdivia’s strategy was to get Teri Ledoux, who had been the assistant city manager under Travis-Miller and who was elevated to the post of acting city manager when Travis-Miller was suspended, to agree to accept a salary and benefit package that is roughly two-thirds of what Travis-Miller was provided.
Travis-Miller pulled down $307,941.56 in total compensation on a yearly basis, consisting of her $262,542.50 annual salary and $45,399.06 in annual benefits. Ledoux, who in October 2017 was working as assistant to the city manager in La Verne at an annual salary of $120.268.73, was hired at that time by Travis-Miller to serve as assistant city manager in San Bernardino. The pay range for assistant city manager in San Bernardino ran from $172,000 to $213,000. Travis-Miller arranged for Ledoux to be hired at a significantly higher salary step than was normally provided to a newly-hired city manager, such that Ledoux’s hiring in San Bernardino represented a salary boost for her in excess of $60,000 annually. Upon Travis-Miller’s suspension and Ledoux’s selection to serve as her interim replacement, Ledoux has been provided with a temporary salary increase to $212,000. Afoot was en effort to have Ledoux accept, as city manager, pay that was roughly equivalent to what a beginning assistant city manager would receive, $175,028.34 in annual salary, coupled with $30,770.61 in benefits. Such an arrangement, it was felt, would leave her with the situational and moral authority to ask the rest of the city’s workforce to voluntarily take 25 percent pay cuts needed for the city to structure its way toward solvency by which it could avoid a future bankruptcy. On July 17, a closed-door negotiating session between the council and Ledoux is scheduled to take place.
Word now comes that Ledoux is in no way amenable to signing onto the strategy of uniformly scaling back wages at City Hall, particularly if it entails her accepting less than 99 percent of what Travis-Miller was making.
“Teri won’t accept a salary before benefits that’s a dime less than $260,000,” the Sentinel was told by an individual close to the situation, meaning that her expectation is that with her benefits, she will be provided with a total compensation package exceeding $300,000 per year. Her intention at this point is to take the city manager’s position for 18 months, giving her an expected retirement date at the end of January 2021.
There are two factors to Ledoux’s salary demands, the Sentinel was told. The first is that under the California Public Retirement System, pensions are calculated on the highest annual salary a retiree received while working. By closing the deal with the city for $260,000 before the end of this month, Ledoux will qualify for a 3.5 percent raise next month, boosting her pay to $269,100 annually. Upon retirement, she will then be eligible to receive a pension equal to her number of years as a public employee (25) times 2.7% times $269,100, or $181,642.50 per year for the remainder of her life. The second factor is that the police chief in San Bernardino is provided with a $250,000 per year salary. Ledoux is insistent that she receive as city manager, the Sentinel is told, at least $10,000 more per year than the police chief.
Ledoux has not consented to speak to the Sentinel. One of her contacts at City Hall said she referred to past Sentinel articles as “bullshit.”
Ledoux’s unwillingness to play the lead role in an effort to get city employees to voluntarily take across-the-board 25 percent salary reductions means that the 25 percent reduction in payroll costs will very likely need to be effectuated in some other way, the most likely of which is massive layoffs. At present, the city’s work force stands at 722, which is under 55 percent of the city’s peak level of 1,319 employees in 2007-08. Assuming the layoff option is what is applied and that it can be effectuated uniformly across all levels of employees in terms of pay grade, the city’s workforce will need to be reduced to 541, meaning lay offs of 181 municipal workers would likely need to be initiated within the next 18 months.
City Councilman Henry Nickel said the city is already in an unforgivingly complicated predicament that could mean utter ruin for the city. He said city officials do not have the luxury of temporizing.
“We have only a very limited time in which to act and I have this overwhelming sense of doom if we do not,” he said.
Ledoux Not Aboard With Plan To Cut SB Salaries To Head Off Bankruptcy
By Mark Gutglueck