What Do We Do about Petersburg?

by James A. Bacon

More bad news from Petersburg: The Southside city of 32,000 souls and 600 government employees has fallen more than 60 days behind on $2.3 million in pension payments. That development was reported by the Virginia Retirement System in a letter to state legislators, as required under a law that went into force this month.

The city has been forwarding the 5% payments deducted from employee paychecks but still owes employer contributions dating back to November 2015, with the exception of May, when it managed to make a payment, reports the Richmond Times-Dispatch. Petersburg closed the 2015 fiscal year with a $17 million budget deficit, roughly 20% of revenue, and, despite cutting the pay of city employees, has yet to devise a plan for closing the gap in the current fiscal year.

Petersburg is the only locality in Virginia that is delinquent on its pension payments, said VRS spokeswoman Jeanne Chenault. The city, she added, is “committed to paying those [outstanding] contributions and they are working on a plan to do so.”

Bacon’s bottom line: I don’t mean to beat up on Petersburg, which just may be the worst hard-luck case in Virginia. But the city’s travails are unprecedented in modern times. I don’t recall anything comparable in my 40-year journalism career. I wouldn’t be surprised if closing the fiscal year with a massive deficit in defiance of state constitutional requirements for a balanced budget has no parallel since the Great Depression.

The first big question in my mind: Is this an aberration due to one-time factors unlikely ever to be repeated? Or are Petersburg’s woes symptomatic of a deeper malaise throughout Virginia? Have other localities, particularly those with depressed economies, “balanced” their budgets by deferring maintenance, slow-paying creditors or engaging in other accounting tricks? I have written about the small city of Buena Vista, which defaulted on a $9.2 million bond issue to pay for a municipal golf course, as a fiscal canary in the coal mine. (Speaking of coal mines, I’d be amazed if the coal-producing counties of Southwest Virginia, having seen their primary industry go up in soot, weren’t experiencing serious fiscal stress.)

Here’s the next question: What we do about Petersburg? By “we” I mean the citizens and elected officials of Virginia who represent us. Should we let Petersburg figure things out by itself? What if it can’t? What if the politics are so dysfunctional, the underlying economy is so weak, or the choices are so hard that elected officials can’t manage the task of balancing the budget?

Do we just look the other way? Do we pretend that Virginia’s constitution doesn’t required balanced budgets? If so, do we create a moral hazard that encourages other localities to say, what the heck, Petersburg got away with it, maybe we can, too? Or, conversely, do we bail out Petersburg? And if we do, what concessions do we extract in return?

It is no exaggeration to refer to Petersburg as “Detroit on the Appomattox,” because, when there is a 20% gap between revenue and expenses, there is a significant possibility that the city can never climb out of the hole it has dug for itself. If that happens, Virginia will face the same kinds of unpalatable decisions that Michigan did with Detroit and Flint. I don’t know if Virginia even has a legal structure to deal with such a situation. Would we put Petersburg into receivership and, overriding normal democratic institutions, appoint someone to run the place?

So far, there has been no public response from Governor Terry McAuliffe. There hasn’t been much of a response from the General Assembly either, although the law requiring the VRS to report localities that fail to make their pension payments did originate from the legislature. At least someone is paying attention.

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26 responses to “What Do We Do about Petersburg?

  1. From the Lynchburg Audit:

    In the current year the City and the Schools adopted GASB Statement No. 68, Accounting and Financial Reporting for
    Pensions—an Amendment of GASB Statement No. 27, as amended by GASB Statement No. 71. This standard replaces the
    requirements of GASB Statements No. 27 and No. 50 as they relate to governments that provide pensions through pension
    plans administered as trusts or similar arrangements that meet certain criteria. The new Statement requires governments
    providing defined benefit pensions to recognize the long-term obligation for pension benefits as a liability for the first time,
    and to more comprehensively and comparably measure the annual costs of pension benefits.

    Lynchburg’s Net Pension Liability —–$99 million (unfunded pension liability).

  2. And of course we are not worried about anything as small as $99 million because our General debt is $257 million so I guess our “promised” unfunded obligations are $356 million or $4,525 per capita.
    Live for today!

  3. here’s some interesting stuff:

    Individual State Descriptions: 2012
    2012 Census of Governments
    Issued September 2013

    ” Virginia ranks forty-fourth among the states in number of
    local governments, with 518 active as of June 30, 2012.”

    http://www2.census.gov/govs/cog/2012isd.pdf page 298

    so there are 518 different possibilities for government to screw up in Virginia.

    wow!

    and the question is – what do we do when one of them becomes a de facto scofflaw?

    should the state send in it’s own take-over team ala Flint, Mich?

    should they find some way to get the money out of the scofflaw govt to make sure that employees are not screwed over?

    should VRS reduce pension payments to retired if the scofflaw locality fails to fund it?

    what kinds of monies do the states send to localities that they could keep in lieu of payments not made?

    probably not the education money – that would harm innocent kids he had no part of the irresponsible govt.

    but perhaps the sales tax – which is collected by merchants and sent to the state who, in turn, sends it back to the locality.

    Perhaps the State should deduct the money owed to VRS and let the locality figure out how they’re gonna meet salaries and other costs.

    but the thing is – when you do this – do you just kick them the rest of the way over the cliff?

    there are, as stated -more than 500 governments in Virginia that can screw up . Metro is one of them. So are quite a few regional jails, water/sewer authorities, etc…as well as many smaller towns like Buena Vista.

    All in all – to use a half-glass full viewpoint – out of that 500+, how many are screwing up?

    I bet less than a dozen or even half a dozen….

    hardly proof that government is fundamentally flawed but also interesting that with all the “govt is corrupt” folks floating around these days – that the absolute best opportunity to directly confront bad/irresponsible govt is, in fact, at the local level – much more possible than at the State or Federal level …

    right?

  4. Should not have listed the “promised” obligations on a per capita basis because the babies and the lazies aren’t paying.

    The “promised” obligations per “employed” Lynchburger is $10,612

    • And I strongly suspect that few of the “employed” Lynchburgers have defined benefit pensions and post-retirement health care benefits. Yet, we don’t see the public sector stopping the bleeding at least on a going forward basis. What happens when the “employed” Lynchburgers retire and move out of town?

      • I’d submit that if employees had the OPTION of truly portable pensions and portable health insurance -they’d take it – and employers including the State would have to truly compete to get and retain high quality workers.

        when employees realize that skills that are theirs – as well as pensions and health insurance -the whole country will be better off most of all people who develop skills that no one can take away.

        that’s what we need to instill in each high school kid – that it’s their responsibility – and their reward to gain education and skills and not expect the govt to take care of them.

        I bet even those who often debate me here – would agree, eh?

        really – what defined benefit pension plans are – from the employee perspective – is deferred compensation. Make that compensation portable.

  5. Dear Jim,

    “For whom do they vote?” ;-))< I suspect the answer to that question, whose answer I can readily guess, will determine the battle lines that will be drawn.

    Sincerely,

    Andrew

  6. Receivership, plain and simple. Appoint competent people to run it. Clean house otherwise. Stop running governments like jobs programs.

    • you gonna replace elected govt with fiat appointed govt are you?

      what makes you think the “govt by fiat’ folks are competent – in fact, if not mistaken – you’d be one who points out that that’s a fallacy, eh?

      • In this case, you can’t do worse than what you got. See Chap 9 of the Bankruptcy Code, See Also, Detroit.

        You don’t really want to engage in this discussion, Larry. It goes back to the foundations of the republic. We will never agree on this stuff, so there’s no point in trying.

  7. From the RTD…seems to be catching!

    Officials with the Virginia State Police and FBI have confirmed there was “activity” at the Petersburg Police Department last weekend in connection to an investigation about money missing from the evidence room.

    And on another note I thought my lying eyes had deceived me.
    Lefty posted this “that’s what we need to instill in each high school kid – that it’s their responsibility – and their reward to gain education and skills and not expect the govt to take care of them.
    That sounds like it came from the Republican creed…”We believe that all individuals are entitled to equal rights, justice, and opportunities and SHOULD ASSUME THEIR RESPONSIBILITIES AS CITIZENS IN A FREE SOCIETY.”

    Now if you would just realize there is an intelligence gene.

  8. maybe a couple of things for crazy and HCJ

    first – the country was founded on the idea that people elected their govt – not have it appointed for them – I bet even HCJ would agree with that!!

    second – what does govt “give” us? well.. in theory equal opportunity at an education – right?

    what countries in the world leave education up to individuals? Any of the OECD first world countries? Must be some sort of correlation there, eh?

    re: genes – yes indeed there are – but the real test is do you have enough of them to realize that it’s not tied to race and we don’t do schools based on genes anyhow – because the real point is that each child – no matter their IQ can advance in life if they receive an education – genes are only 1/2 of the equation. Many a successful person in life – has not been a genius – just a hard worker with enough education to make the most of it.

    Those who would deny children an chance at an equivalent education based on their genes – have a problem themselves and I don’t mind saying it. Some folks just are not equipped to see that every child has potential – and we never do know until we educate how it turns out.

    Even profoundly handicapped people can be trained to do real work which helps them pay their own way and gives them the satisfaction of knowing they can actually do productive work.

    you need to think a bit on this HCJ… so far it’s a dud….

    • >>first – the country was founded on the idea that people elected their govt – not have it appointed for them – I bet even HCJ would agree with that!!>>

      You get a 50.

      The people did not elect their government directly at the founding. Senators were not elected directly by the people until 1913. Certainly the president was not, which system we still have. That bitch of an electoral college actually “appointed” the President. And to top it all off, ONLY PROPERTY HOLDERS GOT TO VOTE. They were thought to have skin in the game. But 50% right isn’t bad.

      HCJ: It’s usually not worth the effort to engage with Larry. He enjoys being obtuse and will come back with the most head-scratching stuff imaginable just for the sake of argument. Because he will never directly answer questions posed but instead will divert, dissemble and change the subject until the dialogue (?) is no longer recognizable as relating to the original post, it generally only makes sense to correct the factual errors and logical flaws in his stuff. Admittedly, there are so many of them that you will find yourself wasting a lot of time doing it. Oh well, I suppose the nature of a blog.

  9. I have a whole hospital full of those that cannot be trained in my region. Get serious. I never have said that all children are not entitled to receive equal opportunity in school or anything else…that is your BS. But you (the royal you) are not entitled to equal outcome…because all have different genes.
    I can assure you that your attempted commentary to belittle those that you disagree with shows that it YOU that has the problem.

    • HCJ – I did not bring genes up – in any context – guy because I think any discussion of genes in the context of education is a red herring and those that do bring it up – should own the fact they did.

      I just flat disagree with you – if you consider that belittling then that’s fine – it was never intended that way and I’m fine with apologizing if you feel aggrieved but I’ll still not agree with the premise you seem to spout including in this blog post… ” Now if you would just realize there is an intelligence gene.” – is that insulting also?

      you play the game guy – and you get it back so don’t pout.

  10. Jim, we are all commenting here about what can be done to fix Petersburg as it currently exists, warts and all. I think it is time to broaden this discussion to consider more radical surgery. It’s time to re- think isolating our cities from our county jurisdictions, then locking them in without the ability to annex territory — i.e., to grow organically. The natural boundaries of a “town” result in very different economics and demographics and politics than what we have in numerous locations in Virginia. Not to mention the racial segregation reflected in so many inner-city versus suburban issues like public transportation. As goes Petersburg, there someday could go Richmond.

    • I agree, it is worthwhile asking if the concept of city/county/town even makes sense any more. Trouble is, Petersburg borders on Chesterfield, Dinwiddie and Prince George counties. It doesn’t obviously belong in any one of the three. And, given its problems, I doubt there would be any takers for merging

      • Speaking from experience, most Counties don’t want to assume the additional burden of mismanaged Towns and Cities. There really is no upside once the municipal assets are dissolved.

  11. I would suggest it is symptomatic of gross institutional incompetence throughout Virginia. Petersburg and the State are only two of the more visible examples. The problem extends down even further, especially to the Town level. Buena Vista can trace its problems to the golf course. Other locales such as the Town of Haymarket have only their fiscal irresponsibility and incompetence to blame.

    In Haymarket, the all-knowing Town Council was warned repeatedly by residents, staff and the Town Manager that they were spending far beyond the incoming revenues. When the final fiscal year numbers came in and revealed a deficit what did the Town Council do, if you guess force the Town Manager out and appoint the Mayor in his place, you would be correct.

    In the long history of the Town it had not once operated in the red until last year. In FY15 the Town had revenues of $2.7 million, expenses of $2.8 million ($2 million of which were operating expenses) resulting in a $100,000 deficit.

    In FY16, the elected “leaders” of the Town decided to up their game. The revenues for the year came in at $2.05 million, expenditures at $2.85 million ($2.13 of which were operating expenses) resulting in a $790,000 deficit.

    When the problem was graphically pointed out to them at their July meeting, those “fiscally responsible” boobs asserted that everything was fine and the P&L proved they were fiscally sound as there was enough money in the reserve accounts to cover the deficit.

    Two problems, first, those reserves were painstakingly funded by previous councils for capital improvements to the town. In the five years prior to this deficit creating crew, the previous Town Councils had year end surpluses that averaged $172,000, money that was generally placed in reserves (that does’t even count the $150,000 returned to tax payers in the form of refund checks in 2012). Given that revenues ranged from $1.6 to $2.5 million dollars, such saving show they ran a pretty tight and efficient budget ship that didn’t over or undertax the residents and businesses.

    Second, the $2 million in reserve left to these clowns has been halved and the Town no longer has reserves in place to cover its outstanding liabilities. Can anybody else spell INSOLVENT?

    Alas, they are above error, reproach or even reasoning with so I suspect this year will prove catastrophic when the reserves will no longer cover their spending, particularly given their ambitious (and irresponsible) capital spending plans.

    • Mom, thanks for the update on Haymarket. I was not familiar with the situation there. Small localities worry me the most because voters have a smaller talent pool to draw from. Many local officials have only a dim understanding of municipal finance.

      • Worry may soon turn to panic. In many jurisdictions the talent pool is shrinking as residents grow weary as a result of such fiscal antics, particularly when they are combined with vindictive actions, favoritism and a large dose of hubris, all blessed by the Town Attorney who sprinkles holy water on those actions through tortured (mis)interpretation of the ordinances, State Code, Roberts Rules, the Ten Commandments, etc.

        In Haymarket there are roughly 1000 registered voters, on election day, 51 took the time to vote albeit many didn’t realize it was election day as the Town didn’t publicize the election until the day after. I suspect there would have been a higher turnout for the May elections if the fiscal conditions had been made public but the Town Council didn’t begin the budget sessions until after the election and didn’t provide the true picture of the Town’s finances until the second week of July.

  12. I have gritted my teeth long enough. Where do I begin… Disregarding the 38 independent cities, can someone show me a state with the perfect form of local government? Remember that in many states, a large number of urban services are provided to urban/suburban residents by special districts, most all of which fund their services with a tax on real estate, unlike service districts in Virginia. I had a Chicago resident who told me that his property tax bill was almost three feet long because of all of their special districts.

    There are approximately 190 towns in the state, ranging in size from approximately 47,000 [Blacksburg & Leesburg] to Clinchport [70]. An overwhelming majority of the towns are under 1,000. Like us all, towns are economic units and in most, the reason for their establishment has disappeared over time. They are struggling and provide a minimum level of service. Why do they continue to exist outside of NoVa and its orbit in the Northern Shenandoah Valley and university towns? Nostalgia? Inertia? Anyone’s guess.

    Town residents may like having a government close to them. If they got a complaint, the can see their town official at the gas station on the weekend. The elected official may or may not be able rectify the problem, but they may try.

    If the town residents don’t like what is going on, there is a remedy-the ballot box. They can vote the crooks out or they can vote in a slate that will take advantage of the process by which towns can annul their charter and disincorporate. Then the county will be responsible for the former town services.

    As I said in Petersburg I, most towns provide a minimal level of urban type services and what they do provide are subject to the same state and federal mandates as those that apply to Virginia’s largest city-Virginia Beach.

    Town revenue resources are limited mostly to property taxes. Any sales taxes from retail establishments located in the town go overwhelmingly to the parent county because of what some say is a punitive formula. That is one reason why Farmville looked very closely at becoming a town in the 1980s; they got tired of seeing all those sales tax dollars from department stores and fast food restaurants go to the county.

    Another problem that confronts towns is finding people to serve as an elected official. Some if it is of their own creation. For example, the town of Virgilina has a population of 154 and has a government of six elected officials! The last time I looked was a May municipal election cycle the 1990s and then most of the elected positions in many of the towns had no one standing for the office! Even then, people did not want all the headaches that came with the job-the endless meetings [in addition to regular council meetings you have a whole host of others], state and federal mandates that cost money, residents wanting more and more urban services [door-to-door residential garbage collection anyone?], etc. And, then there is the factor of banks, factories and other businesses in the town closing taking with them the people who generally served on elected bodies because it was encouraged by their employers.

    What to do about Petersburg? Or Portsmouth where over 60% of the land is tax exempt. Or Buena Vista? Or others that are a Wal-Mart or plant closing away from financial distress? There is no silver bullet, there is no easy answer. A financial receiver would solve the immediate problem, but who addresses the long-term social and unemployment problems that contributed to Petersburg decline.

    What to do about Clinchport or all the towns with less than what? 500? 1,000? 3,500? Well, in the case of towns, the General Assembly could repeal their charters by legislative fiat and let the counties deal with whatever is left. Simple!

    As Jim also alluded, we also have to worry about the Southwestern counties who depend of the coal industry. They are not exactly in the best of financial shape. And the counties in Southside along the border with NC who are heavily dependent on agriculture or out commuters. They will take almost any industry that want to located in their area. But what do they have to offer a major corporation in the way of services?

    As H. L. Mencken once said, there is always a simple solution to every human problem…neat, plausible and wrong.
    Bosun

  13. yeah – I’m a little surprised that Bacon chose NOT to highlight Bosuns’
    response!

    and let’s reiterate precisely Bosun’s point that the rest of the states do not have independent cities and towns and yet have similar problems – aka Detroit…. and Flint….

    In theory -the ballot box is how you do address these issues – that’s the way the country was designed – and having appointed govt is an anathema to the very principles on why the country was born!

    Geeze!

    then the question those who preach gloom and doom from govt “failure”:

    ” A financial receiver would solve the immediate problem, but who addresses the long-term social and unemployment problems that contributed to Petersburg decline.”

    what answer do the gloom and doom – provide to this dilemma?

    how about none? their basic premise is that govt is fatally flawed and doomed to fail … and then they blather about the private sector, and other nonsensical folderol.

    MOST local govt IS run responsibly – why do we point to the few that are not and claim this represents the overall status of govt as a concept?

    All this Tea Party foolishness about changing govt and how much of it actually occurs at the local level ? Apparently all the Tea Part folks live where govt works and are advocating solutions for other places where it does not – to have other appoint govt for them?

    hmm…. boy does that have some ugly connotations… eh?

  14. Eliminate all jurisdictions in Virginia save for seven contiguous non-overlapping regions. Give each region extreme political autonomy. Turn the General Assembly into a debating society where the members routinely show up dressed as Thoms Jefferson to sing the state song. Deny them any legislative or regulatory power. Implement a revenue sharing agreement (with a fixed ceiling) that defines how much money can flow from any region in any given year (I’d suggest a cap of 15%). Anybody who doesn’t like how their region is running should be encouraged to move elsewhere.

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