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Jan. 15, 2021 - Epoch Times
15:39
What Happens When A City Goes Bankrupt? | Laurie Davies, the Mayor of Laguna Niguel
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We often associate bankruptcy with individuals, companies, or corporations.
But we almost never associate bankruptcy with cities.
In fact, in 2013, Detroit notoriously became the largest U.S. city to ever file for bankruptcy.
In California, cities like Stockton, San Bernardino, and Vallejo have done the same thing.
This is called municipal bankruptcy, and many cities in California are preparing for it.
With the impact of the coronavirus and recent riots, many cities across the nation are now facing the same issue.
I sat down with Lori Davies, the mayor of Laguna Niguel, to get some perspective on what it looks like when a city goes bankrupt.
How exactly will it impact the day-to-day life of the residents?
And what can we do to prevent our cities from going bankrupt?
Welcome to California Insider.
Thank you so much.
It's a pleasure to be here.
You're the mayor of Laguna Niguel and you're here to share with us about the cities, how a city could go bankrupt.
You know, there's a few reasons why a city goes bankrupt, but one of them is when they're not looking at their budget and when their expenses exceed their revenue coming in.
That's like anything.
Your budget on a city should be used like a business.
You know, if you're going to have a profitable business, you have to make sure that you're bringing in more revenue than you are spending out there.
And how do cities make money?
Well, I can tell you that it varies throughout cities.
I can tell you that a lot of cities would be property taxes and sales taxes.
That's one of the biggest things right there.
And obviously with COVID-19, you can see where that came in.
Also, you have cities, say Anaheim, some of your largest tourist cities, you're looking at TOT tax.
So they're getting that tax through the tourism.
And your Airbnbs and your hotels.
So a lot of different areas, but it's typically property taxes, sales taxes.
Usually you're going to find most budgets, most of the spending is going to be in public safety, and then usually it goes into public works.
So the police officers?
Absolutely.
And public works could be libraries and parks and things like that?
Right, and you're going to see your law enforcement, your firefighters, that's going to be your public safety, different programs you have in there.
So for a city to go bankrupt, does it usually happen overnight or does it build up over time?
No, it builds up over time mainly.
It's kind of like recession, and it slowly starts, and then it kind of ties off.
But the whole thing is, are cities being physically responsible when they start getting into recession?
Are they making the cuts that they need to from the beginning?
It's when cities don't make those cuts that they need to, and then all of a sudden they get right into the heart of that recession, and they have nothing there.
They have no revenue.
And what are some of those signs that the city is not doing well?
You can tell when a city's not doing well when you have a changeover in staff.
When you have a payville, when it comes politically, you're having problems with audits.
You know, and again, you have to have leadership.
And when you're seeing leadership, change over as well.
You have to have good leaders.
They're responsible for, you know, making those tough decisions and making sure that you have a balanced budget.
That's the number one thing.
If you don't have a balanced budget, that's a first sign of showing that you're going to be having trouble down the line.
We are hearing that a lot of cities are facing challenges after this coronavirus, or as we call it, CCP virus outbreak.
Can you comment on that?
Sure.
You know, unfortunately there are already cities that were getting close to bankruptcy, and I think that was really the thing that just kind of pushed them over.
Over the cliff, because we basically, this wasn't like a recession.
You know, recession, you can see a recession, and it has slowly moved, so you can kind of work with it as you're moving.
This just shut the whole city down, you know, like that.
So you had loss of revenue, and you're never going to get that revenue back.
So they got affected because their revenue, they couldn't collect the sales tax?
A lot of places, exactly.
I can tell you that the sales tax is one of the bigger things, though, that does bring in the revenue to the city, and that's where those funds are being put.
So for those cities that are on the brink of bankruptcy, how do the residents get impacted?
You know, I think there's various ways of that.
You'll see, number one, services start getting cut.
And that's something they're going to find out.
It could be street cleaning.
You know, something as basic as that, but something that they count on all the time.
You're going to see businesses leaving.
And that's huge.
And usually you'll see that when you have, take Detroit, you know, something like that.
You look at the business start leaving.
So pretty soon you start seeing empty storefronts.
And you see foreclosure signs on lawns.
So it's those things that are, you know, affecting them.
You're seeing cuts at school.
It's not good, you know, and it's really tough when you trusted these people and you're paying the taxes and you're assuming that they're doing what's right with those taxes and all of a sudden you wake up one day and find out that, you know what, your city's going bankrupt and now, you know, you're going to have to go through, you know, you're going to have to go through a lot of pains and it's going to take a long time to be able to get back up where you need to be.
I think the same feeling is if someone personally is going through bankruptcy.
There's a lot of loss in trust.
They're thinking that they're second-class citizens.
They're watching all of these services leave them.
And most of the time, they're blindsided.
They didn't know this was happening.
You know, until all of a sudden it comes out.
Because you'll see all of a sudden, you'll read something in the paper like so-and-so goes bankrupt.
You're like, oh my gosh, did you see that?
And a lot of people weren't aware of it.
And so it's devastating.
And a lot of them don't want to stay.
So those people that can move will move.
And then it really leaves, you know, sometimes your lower...
Income people still living there because they can't afford to move out.
And so it's tough, and it takes a lot to be able to bring a city back, and that's where you need good leadership.
You've had good city managers that have come in and turned things upside down to the good.
So they can see cuts, right?
Do they see cuts to their police force?
Typically, that's going to be one of the last things you're going to see, but it does happen.
I mean, I would say anything.
We all take an oath that safety is our priority, and I think that's right across with any elected.
So you try not to do that, but there are times that they have to start cutting.
Public safety, because that's kind of one of the last ones that you have.
And if there's not enough to be able to cut in the other places, you know, first thing you're going to be cutting will be, you can even take like, you know, maybe the activities you used to do, just the fun things that you had for your city.
Maybe it was different fairs or carnivals or parades, you know, and you try to cut, but it's still, it's not a lot.
You know, so you try to start there.
It's kind of like when you've got to watch your pocketbook at home, the first thing you do is, I'm not going out to dinner.
Right.
Or I'm not going to the movies.
It's kind of more the entertainment things.
The fun things.
Right.
But then it starts going, all right, what am I going to cut next?
And so you start looking at capital improvement projects.
All right, we wanted to maybe build that community center.
But we're going to put a hold on that right now.
Right now the money's going to go to anything, safety of roads, anything that becomes a safety issue.
That's where your money goes, but all your other projects are left.
And if that's not enough, then you have to start looking at your public safety and whether it's cutting back in staff.
I'm cutting back in programs.
So again, that's the last thing you want to do, but unfortunately that does have to happen sometimes.
Does it scare businesses away when they see a city is going bankrupt?
Well, if I asked you and I throw it back, say you had a business you're going to start, you know, one of the first things, just like when you're looking to buy a home, you know, hopefully you do your research and you're going to look at, you know, how is this city run?
Are they business friendly?
You know, do they require a license?
How many restrictions do they have?
Is this a place I want to be?
And you want to make sure that the city actually is doing well.
It's kind of the same thing as, you know, you're going to go buy a house.
You're going to go ahead and look into how that city is run.
You know, and people don't realize that.
You know, I think they look at the home a lot of times and they're like, oh, this is perfect.
And they don't pay attention.
But again...
You know, people have busy lives.
Unless you actually hear it, you know, you don't realize.
And I used to laugh because, you know, people are like, oh, you're the mayor.
I'm like, they're like, I didn't know you're the mayor.
And I'm like, no, I said, that's a good sign.
I said, because guess what?
I said, if the city wasn't doing well, you'd know my name, you'd know what kind of car to drive, you'd probably know my dog's name, and you know where I live.
I said, the fact that you don't know who I am means that we're doing a good job, you know, and that's the way it's supposed to be.
With cities, like you mentioned some cities, and I want to get into it more, like the current state of California.
So we've had the coronavirus outbreak, so there's pressure financially there, and then now there's riots.
How is that impacting the cities?
The timing was basically right when I believe the stage of opening up malls and stores was pretty much right at the same time.
And so a lot of them decided not to open up just because they didn't want to have the concern that, you know, they've already lost a lot of income revenue.
They didn't want to have the concern there.
So I'm hoping in the next week we'll see them start opening again.
And so cities like Anaheim or Costa Mesa where they have South Coast Plaza that has been shut down for three months, and then you have Anaheim where they have Disney.
They have had huge hits.
And how do you think they could survive?
The good thing is a lot of these cities, even though it was a huge hit, especially with, say, South Coast Plaza, the income coming in there, Or Anaheim in the tourism.
But they're pretty well-run cities.
And that's the good thing.
The one thing you want to do if you're a well-run city is make sure you have reserves.
And that's what you use for a rainy day.
And so that's what, you know, I'm sure that they're going to be looking at there and then where they have to cut.
But all in all, I'm hoping that we'll be getting some funding from the state as well as the federal.
Let's talk about potential cuts.
You mentioned public safety is one of the key Key initiatives that cities work on.
With the laws, it seems like it's become more and more difficult for the officers to actually do their job.
Is that the case?
It is.
In 2014, the first prop that was on the ballot for the voters to vote on was Prop 47.
And what that was is it used to be if you got caught stealing anything more than $450, that was basically a felony and you went to jail.
They went ahead and they changed that and made that $9.50.
And so it made it very simple for people to go and shoplift.
I mean, to the point where you still have people going right now into Walmart, into other stores, and they take a calculator with them, and they shoplift, and they know exactly where they're at, and if they get caught, they're like Prop 47.
And all they could do is...
They already know the law.
Oh, yeah.
Oh, they knew.
Right.
I mean, they're sitting there, and they're studying it, and they're like, all you can do is write me a ticket.
And that's all they could do.
So you're tying the hands of our law enforcers to be able to do something.
So you're watching small businesses lose money.
A lot of them had gone out of business because of the money they were losing with shoplifting.
Another one was, and this goes into homelessness.
Before, if you were contouring drugs or, you know...
Alcohol or anything like that, you would go to rehab for 30 days.
You usually would go in front of a judge, and he would make it mandatory rehab, which was great.
It gave you an opportunity to clean, you know, to get clean, to get off the street and hopefully get back up and, you know, and being productive in society.
They stopped that.
So now, literally, you could sit there and shoot up heroin right in front of your police officer and there's nothing they can do.
Nope.
And at this point now, it's not even worth writing a ticket because they're not going to.
And so you're going to see this happening all over.
I mean, we had a call and there was someone that was caught, you know, doing heroin in the bathroom of their HOA pool.
And the officer came and said, listen, we've picked this guy up four times.
And so it's not doing them a service.
I mean, they need to be able to get help.
And so changing that as well, you know, isn't helpful.
And one of the things is when they put these on the ballot, they always advertise that the way it's stated is something different.
You know, so the public don't realize what they're voting on until after the fact.
That was 2014, 2016, Prop 57 then came up.
And that's where it went and it made certain felons, victimless crimes, felons to misdemeanors.
So rape if unconscious, that then went to a misdemeanor.
Drive-by shooting, sex trafficking, things that you would just...
So those are misdemeanors.
Right, because they were never listed as a victim crime.
It went down.
And again...
So basically, it's just, it's allowing, you know, people realize there's no consequence for what they do.
And right now, when you're looking at the zero bail, that's what was put up for in COVID-19.
And that was that if you were arrested on a misdemeanor or even, you know, depending what the...
Charge was, you didn't have to worry about having bail.
You got released.
So we had officers saying, you know what, I picked up the same guy four times this week.
So you're taking law enforcement away from the job they should be doing.
And so there's got to be a fine line of making sure that they're protected, we're protected.
But also, you know, you don't want to have, you know, an overreach either when it comes to penalties and things like that.
But the laws keep getting worse and worse.
So you're saying that when we see these measures on the ballot, we should really pay attention to and understand what they mean?
Absolutely, and that's something that I've been working on for the last couple years is trying to educate and inform our citizens.
It's, you know, how many times is, you know, the next day after voting, they're like, what do you mean I'm paying 10 cents for a bag?
Because people don't realize what they're voting on.
And so I'm not going to tell someone how to vote, but what I'm going to do is give them the information and tell them how that's going to affect their pocketbook, how it's going to affect the safety of their family, and they can make a decision.
But typically, when they realize what it is, after, like, I'm telling you what this is, Prop 4750, so I'm like, oh my gosh, you're kidding me, because they had no idea.
It's just, you know what?
Informed voters make common sense decisions, and they make good decisions.
And that's all it is, is people are busy with their life.
They don't have time to do it.
A lot of times, I saw that on TV, that commercial, like, oh, that's good, that's bad, like you said, and they get in there.
Or if they don't know what it is, they usually say, I just didn't vote in on that item, you know, on that issue.
Or they go by the party line, right?
Right, exactly.
I live in this party, so I just go with whatever they tell me.
Right.
And how about, what about the residents?
What can they do to help their city if they wanted to do something about this?
Well, one thing I believe in is, you know, if you want to make sure that your city doesn't go bankrupt, make sure you either reelect or elect good-sounded mind electeds that are going to make the tough decisions, that are going to be fiscally conservative, that, you know, even though they've got pressure to be spending on this or spending on this program, that, you know, can stand up and say, no, we have to sit there and we have to be smart about this, and I know that we'd love to be able to offer this, but right now we have to be tight so that your money counts.
Run it like a business.
Okay, great.
Any other comments?
I could go on all day long on that, but I just think that, you know, we're very blessed to live in California.
I mean, it really is.
I came from Wisconsin, and I'm like, you know, love Wisconsin, but I don't like the winters, and I would do everything I can to make sure that I get to stay here, and it's a beautiful state.
We just have to have good leadership with common sense, you know, knowledge behind them, and always put the people first and, you know, leave their agendas at the door.
Well, thank you, Larry.
My pleasure.
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