A Case Study In A City On The Edge Of Bankruptcy: Fresno, California

"The reality is we're doing less with less," is the dismal reality facing Fresno police chief and appears to sum up the situation facing many of America's cash-strapped cities (as we previously discussed here). Fresno's problem, as the mayor put it, "we have no money in the current account all." The situation was so dire that covering an unexpected expense—a new air-conditioning unit or firetruck, for example, would mean slicing into the payroll or borrowing from another depleted city fund. "We can get through the day to day. [But] if there's a derailed train, a natural disaster, where's the money going to come from?" Like many other cities, Fresno saw its sales- and property-tax revenue plummet as the economy tanked. In response, the city slashed services and staff. Fresno now can pay its bills, but it can't do much more than that.

 

 

 

Via WSJ,

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"Our problem is we have no money in the checking account at all," Mayor Ashley Swearengin said to the silent room. "None." The situation was so dire that covering an unexpected expense—a new air-conditioning unit or firetruck, for example—would mean slicing into the payroll or borrowing from another depleted city fund, she said.

 

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The sprawling city of about 500,000 people had less than a day's worth of available cash in its general fund, based on its 2012 financial report.

 

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Fresno currently has just $1.5 million in emergency reserves—a fraction of the $10 million a city its size should have, based on standards from a national government-finance group.

 

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"We can get through the day to day. [But] if there's a derailed train, a natural disaster, where's the money going to come from?" said Karen Bradley, the city's assistant controller. She said she sometimes worries about the freight trains that rumble through town multiple times a day.

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Like many other cities, Fresno saw its sales- and property-tax revenue plummet as the economy tanked. The city ran up $36 million in deficits by 2011, mostly from revenue shortfalls, cost overruns on grant-funded projects and debt incurred to build a $26 million convention-center garage.

The garage became an albatross

 

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As revenue declined and creditors fretted over Fresno's deficits, the city decided to use the cash it had to pay down debt. To rectify the garage deficit, the city borrowed from its water and solid-waste funds to pay back an array of other city departments that the parking garage had raided. Such moves helped Fresno clear out a tangle of internal debts, but left the city low on cash and barely able to cover operating expenses.

 

In response, the city slashed services and staff. Fresno now can pay its bills, but it can't do much more than that.

 

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In the past four years, the city reduced its workforce by 1,200 people—a 29% cut. The police department lost 426 employees, or 30% of its staff. Now, 72 dispatchers handle some 1,000 emergency calls a day, down from 91 dispatchers four years ago. Residents are encouraged to go online to report nonviolent crimes such as auto thefts and break-ins.

 

"The reality is we're doing less with less," Fresno Police Chief Jerry Dyer said.

 

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City officials are seeing small signs of hope: Revenue is up slightly this year as the economy improves and tax proceeds rise. Officials say their plan should keep Fresno out of bankruptcy and put it on track to build $5.8 million in reserves by the end of 2018—still below the $10 million target.

Let's hope!!!