How Seattle went broke
In an old Broadway musical, "Music Man," a lead song warned of "trouble in river city." It would be difficult to find any time in the last half-century when Seattle or most other American cities have been in as much trouble. No, it's not just floods, tornadoes, tropical storms, or oil gushing out of the ocean floor; it's the realization that our economic bubble has burst. So mesmerized by the bountiful life we all have had, many Americans and their leaders didn't take the need for austerity, even at the local level, seriously enough.
Our financial trouble lingers from a recession that hasn't been safely overcome even now. The trouble now isn't from trading in derivatives, but from not having the revenue to meet governmental payrolls that swelled during the booming years, along with cities borrowing excessive amounts of money for infrastructure that existing economies can't repay.
While of little solace, we aren't alone. Over half of the nation's cities are in a form of fiscal crisis. San Francisco, Houston, Los Angeles, and Pittsburgh are among many who have contemplated bankruptcy. Revenue, much from sales taxes, has plummeted, and with unemployment hovering around 9 percent nationwide, people simply aren't spending as much as they did a decade ago. With record numbers of homes in foreclosure, property taxes aren't always collected, and the same can be true with real-estate excise taxes.
To make matters worse, while there are some bright aspects to the economy, world financial advisers are more than a little concerned that there are so many nations carrying debt they can't repay and that their collapse might take healthier nations along with them. Last year's bailouts of financial institutions both here and abroad weren't much more than the Dutch boy with his finger in the dike.
European nations and the IMF have agreed to bail out Greece, which can't pay its debt, and they are worried about Portugal, Spain, and Italy. Many Greeks are rioting in the streets in opposition to the austerity requirements for getting international financial aid. The Greek people feel entitled to pensions and government subsidies.
The problem for our local leaders seems to lie more in their unwillingness to realize the few who are shouting 'êfire'ê really mean it. The attitudes of local governments are a bit like the tendency to deny that we each are getting older. We don't really want to believe it, but things just aren't what they used to be. Denial is one stage of death.
Here in Seattle, which was slower to feel the effects of the recession, our leadership is just starting to wake up to the realization that we are in far greater financial trouble than we were willing to acknowledge. At first, budget deficits of $40 million were discussed. Now that revenue is unlikely to rebound in the near future, budget deficits as high as $120 million (over the next two years) are being discussed.
There was a day when the mayor and city council would, with an almost cavalier attitude, choose some city service to take the hit, such as closing a library or park. The actions had the appearance of inflicting pain more than doing any serious budget decision making. Another tactic was to trim a few percent from all departments.
This time, cutting library hours, increasing parking fees, or closing bathrooms in parks won't come close to solving our financial crisis. Those won't be enough because in those affluent years our progressive spirit initiated many new programs that responded more to ideas of what we wanted and less to what was essential. We hired new city workers to implement the programs because we had the money. Now the money is gone.
Seattle has always had an aura of adolescence about its image. We perceived our zits were visible, that they somehow prevented us from becoming that "world class city" we wanted to be. We dabbled for years in cosmetic improvements rather than setting aside money to replace things that were certain to wear out. The Magnolia Bridge was but one example.We also spend on new equipment and continue to create cosmetic improvements throughout the city that could easily wait, like putting in new roadway medians, fancy street signs, or expensive trails. We do a lot of discretionary spending.
We wore rose-colored glasses when it came to paying city workers. We wanted the best, hired more than were needed, and we got the best and paid the best.
Several former union people hired by the city of Seattle'ês personnel department were part of the team that negotiated the 24 union contracts the city has with its unions. We can wonder how hard they bargained on the union contracts. So far, the city's unions haven't been jumping forward with enthusiasm to make concessions significant enough to solve the city's financial dilemma. The average pay for a city worker in 2008 was around $73,000 a year. Maybe not excessive, in a high cost of living city, but since the average household income of two people in Seattle identified in the 2000 census was $44,000, city workers would survive if taking less meant saving their jobs. The 9 to 10 percent of Seattleites who are out of work are paying their share to support the much higher paid city worker.
We also spend on new equipment and continue to create cosmetic improvements throughout the city that could easily wait, like SeaTrans putting in new roadway medians, fancy street signs, or expensive trails. We do a lot of discretionary spending.
The mayor and city council are wringing their hands and holding hearings on what to do. Privately, they likely talk about raising taxes and fees. They also are seriously studying turning over city operations to a wholly different kind of taxation and municipal management. These schemes go by a variety of names, but most follow guidelines established by the state that allow entire civic operations to be run, not by the city, but by management entities with separate taxing powers, such as a park or library district.
They can assess taxes, have the right to eminent domain even hire their own cops. Does it work? Since they can levy taxes, they have no reason to trim operations or reduce staffing.
Those opposed to special districts to handle municipal services believe that the arrangement would allow current government leaders to cop out of cost-cutting. Will there be special districts for libraries, water systems, where even the police could operate within this framework? Opponents argue, where would it stop?
In 2008, Seattle employed about 11,000 city workers, who were paid about $800 million. Seattle is also obligated to fund its retirement program. In 2008, the city paid its retirees almost $46 million, with that number expected to rise by 14 percent. The bursting of the financial bubble wiped out $527 million of Seattle employee retirement funds invested in the financial markets. It;s unclear whether the city will need to pick up the tab for retirement benefits that would have come from now-gone investments.
Seattle has become known for progressive public policies. We have a variety of housing programs that range from help with rent to financing near market rate housing. With homeless still on the streets, there never seems to be enough. Seattle passes housing, school, and parks levies. Seattle has stepped up to the plate more than neighboring cities in offering programs to the less fortunate. So effective, in fact, that other Washington cities with inadequate public assistance are more than willing to let their needy move to Seattle. With the revenue shortfall so severe, there may be limits to what even Seattle can do.
If you take the time to study Seattle departments in detail, it's obvious that many city departments have a wide spread of job titles and pay. The head of a department can easily make above $150,000 per year, not an unreasonable amount. But directly under the director are dozens of administrators with exceptionally good pay. The mayor and city council presumably have sent the message to city departments to find all ways to cut staff, but one wonders whether departments will cut from the upper or lower end of the very wide pay scale. Would it not make good sense for city council to set policy on what range of pay scales should be cut?
There has been news about a parks department plan to close wading pools and not dump garbage cans or service bathrooms in parks on certain days. Most of the job cuts were for employees at the extreme bottom of the pay scale. Left in place were eight executives making from $114,000 to $160,000, 12 strategic advisors making $60,000 to $106,000, 38 managers making above $70,000, and even nine personnel analysts. Maybe the personnel analysts decide how to make cuts; they are paid between $64,000 and $79,000. If wading pool attendants are paid between $13,000 and $20,000 per year, how many fewer strategic advisors would it take to keep the wading pools open?
Actually, the parks department is fairly lean compared to other departments. Seattle Public Utilities has 31 executives who earn from $114,000 to $187,000. SPU has 67 strategic advisers, some whom make $116,000, along with dozens of managers who make in excess of $90,000 a year. In all SPU has 102 employees who make $100,000 a year or more.
SPU and Seattle City Light differ from other departments in that they create revenue. If more staff are added or costs go up, the city has the option to increase service rates to cover the increased costs.
Seattle's Department of Transportation, commonly called SeaTrans, has around 728 employees. Once called the engineering department, its duties have expanded many times in recent years, and now include everything from writing new rules for operating scooters to issuing street-use permits and fixing potholes. Planners and managers are strongly represented on the SeaTrans work force, whose payroll in 2008 was $47.7 million, not counting health care and retirement benefits. The department lists 10 executive positions and 44 manager positions. SeaTrans has 38 employees who earn over $100,000 per year.
There are other curious anomalies in the pay scales of Seattle employees. Take the Seattle Public Library, undergoing severe cuts. Its 690 employees represent proportionally the highest educational level among city employees, yet library employees, as a group, are the lowest-paid employees in the city system. There are only two library administrators with pay above $125,000, and they supervise 345 people.
The fire department, on the other hand, with a total budget for 2010 at $156.9 million has about 1,100 employees. This includes eight executive positions, 35 fire chiefs, and assorted strategic advisors and captains who are largely administrative. They end up with one administrator for each 25 employees. The department has 115 employees above $100,000. None of this group of 115 are asked to enter burning buildings. It would appear library management is dozens of times more efficient.
So, if you were Mayor Mike McGinn and the city council, where would you plan to make the big cuts necessary in the next three years? Would you put on hold purchases of new Prius hybrids? Would you re-evaluate the 24 different union contracts and ask each union to make adjustments in their contract? If a union votes to approve the use of unpaid furloughs or time off or extended unpaid holidays, the city can cut costs. However, not all unions have made that choice possible.
Labor law is complex, as are the details in the 24 contracts the city has with its employees. Private sector union leaders have already taken the unexpected stance that public sector unions should re-evaluate their positions or take the chance of losing their jobs. San Francisco took the unprecedented step to avoid bankruptcy by sending pink slips to all 15,000 city employees. Their plan was to hire back virtually everyone but with new contracts and pay scales commensurate with the revenue available.
Meanwhile, Seattleites will probably flock to McGinn'ês public hearings and demand that their their pet project not be cut. If the city complies and fails to act with needed cuts, Seattle could end up in an even worse financial dilemma later.