Bankruptcy unlikely for local cities, counties

Law and tradition restrict governments' risk in Washington




The perfect storm of financial woes that most recently prompted the city of Detroit’s history-setting bankruptcy is not foreseen for governments in Clark County, officials and financial experts say.

Clark County has been particularly careful to keep its expenditures in line with its revenue, the county’s budget manager, Bob Stevens, said Friday. For instance, Detroit “had a severe debt problem,” Stevens said, in which the city used “debt to pay for normal operations. That would never be the case for us.”

When the county does borrow money, it’s to build a capital improvement project, not to cover everyday costs, Stevens added.

Although municipal bankruptcies are getting a lot of attention lately, they remain rare for cities and counties. There were 28 municipal bankruptcies in the United States in 2011 and 2012, according to Governing magazine. Most were small utility districts, encumbered by debts that piled up during the Great Recession.

Clark County Treasurer Doug Lasher said he couldn’t foresee the county, or any city governments, falling into financial disrepair, barring any sort of catastrophe. With few exceptions, Washington manages its cities’ pension plans. But in Detroit, city officials were placed in charge of the retirement funds.

“They even went out for a huge bond issue to cover that,” Lasher said. To pay off the bond, “they were banking on the economy to turn things around there.”

Meanwhile, Clark County’s cities tap into the state-managed retirement system for public employees. Pension reforms the state has implemented over the years have prevented payouts from ballooning to unsustainable levels, said Lynn Nordby, a public policy consultant for the Municipal Research Services Center of Washington. Others say those reforms should go further, although without taking away benefits that have already been promised, which would be illegal.

Further restricting revenue for Detroit: The city experienced a significant population decline, from a high of about 1.8 million people in the 1950s to about 700,000 people today. By comparison, Clark County has grown by more than 23 percent over the past decade.

The former chrome coating of America’s rust belt, America’s “Motor City” has also struggled for decades to reaffirm its footing amid an evolving auto industry. The city has been further racked by political corruption, with former Mayor Kwame Kilpatrick sent to jail for felony perjury and obstruction of justice.

Detroit is “just a different beast,” Lasher said. “They’ve created their own problems over the years.”

Vancouver officials did not return calls on Friday seeking comment for this story.

Smaller cities, such as La Center — among the county’s least populated, with around 3,000 residents — could be prone to not meeting their financial obligations if they overextend their finances. In La Center’s case, the city is wrapping up the first stage of its union negotiations now, said Suzanne Levis, the city’s finance director. Union contracts can lock governments into annual pay raises for employees and other financial obligations.

Despite signs the economy is turning around, the city is looking to cap cost-of-living increases at 1 to 2 percent a year, which is below the consumer price index, Levis said.

On top of that, the city is also implementing a policy for its reserve funds that will allocate them for specific uses, including debt service.

Outlook for counties

Nearby Skamania County has faced its own financial woes.

The county says it has experienced unprecedented and serious reductions in federal revenues. The federal government owns nearly 80 of the forest land there. And with a reduction in federal timber payments in recent years, the county has struggled to fill its coffers.

Those reductions led the county this year to freeze hiring and wage increases, except supervisor-approved raises, and slash capital improvement expenditures.

Members of Congress have been working on solutions to address shortfalls in timber payments.

Even without those solutions, Skamania County likely isn’t in danger of going bankrupt, analysts say.

It would be unprecedented for a county in Washington to go under financially, said Josh Weiss, policy director for the Washington State Association of Counties. The state constitution doesn’t include guidelines for helping a financially ruined county, but state legislators would be responsible for addressing the problem, Weiss said.

The state provides resources for counties, as well as limitations on which taxes counties can impose, and how much those taxes can increase, Weiss said. For example, a 2003 state law forbids counties to propose more than a 1 percent property tax increase each year, unless the housing industry in that county is booming, he said.

Property taxes are less volatile than other revenue sources, such as sales taxes, so the 1 percent rule is tough on counties, Weiss said, especially when “our costs are growing at 3, 4, 5 percent per year.”

Stevens, the Clark County budget manager, described the county as operating in a fiscally responsible manner.

“The major issue for us is just keeping up with our expenses,” Stevens said. “Basically, it boils down to doing more with less.”

Although the county is tightening its purse strings, it’s still light years away from the financial ruin seen in Detroit, Stevens said. Stevens said the county also has insurance policies to protect against major blows to county funds, such as a big lawsuit.

What matters, Stevens concluded, is “how well you plan for what’s happening.”

Stevie Mathieu: 360-735-4523;;;