Is This Wealthy San Fran Suburb Really on the Brink of Bankruptcy or Is it a Scam to Raise Taxes

zerohedge.com / by Tyler Durden / Jul 7, 2017 4:50 PM

When you think about municipal bankruptcies, your mind likely conjures images of a decrepit Detroit littered with abandoned auto plants and burned down houses or the rapidly deteriorating city of Chicago with it’s gang wars and neighborhoods that look and feel more like an Iraqi battlefield than a U.S. suburb.

What you likely don’t think about is an ultra-posh suburb of San Francisco where the median home will run you over $1 million.  But according to Bloomberg, the wealthy Northern California city of Moraga could be the next Cali domino to fall.

 “We just don’t have enough revenue to take us through the future for many more years before we would really be in some of the situations other cities are, where they’re laying off mass numbers of employees or declaring bankruptcy,” town manager Robert Priebe said in an interview.

 In Moraga, where the council discussed establishing a poet laureate position before approving the fiscal distress declaration, lowering headcount isn’t the first priority. The town’s $8.5 million budget this year authorizes about 36 full-time workers. Members instead opted to reduce services such as park maintenance in the community about 20 miles east of San Francisco.

 “We’re not willing to hurt the public first,” Priebe said. “We’re not going to lay off half of our employees and have the quality of life of all of our citizens really be impacted.”

Moraga, where the median family income is $169,000 a year, illustrates an irony for some at the center of Silicon Valley’s latest economic boom. While real estate prices have surged due to the latest tech bubble, the local tax collections haven’t necessarily followed the same trajectory because of Proposition 13, the 1978 ballot measure that keeps homeowners’ tax bills from rising by more than inflation or 2% a year.

And, of course, governments can’t possibly operate in a world where their budgets only increase in-line with inflation.

So what do you do when you’re a government official and want to raise taxes so you can keep living outside your means and paying too many people too much money to perform relatively simple tasks?  Well, you wait for a couple of one-time maintenance ‘catastrophes’ to come along and exploit them as a way to justify a permanent tax increase by declaring a “fiscal emergency.”

The squeeze on Moraga stems in part from two infrastructure failures: the damage to a bridge in April and a sinkholethat became such a civic event that residents threw it a sarcastic birthday celebration. Though officials are hoping for state and federal reimbursements, the cost to fix both depleted its savings, leaving the city vulnerable to another emergency. The general fund, boosted modestly with this year’s anticipated $46,217 surplus, has about $1.6 million in reserves.

The fiscal emergency declaration allows Moraga to put any revenue-raising measure on the ballot when it wants instead of waiting for a regularly scheduled election. Options being mulled include proposing a flat fee on property or a utility tax, Priebe said. The town will poll residents by phone to see what’s preferable.

Of course, not everyone is buying into the scam…including Seth Freeman who points out that the Moraga city council voted to implement pay raises for city staff just two weeks before issuing an “emergency declaration.”

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