Golden Arches and Broken Dreams: American Cities Drown in Debt

By Marc Hujer

San Bernardino, California, has gone from being the birthplace of McDonald's, one of the world's most successful companies, to a mound of unpaid debts. It's a sad example of what a lack of infrastructure investment and an almost religious aversion to higher taxes have done to cities across the United States.

Ketchup and mustard, always in exactly the same amounts -- this is the secret of the serving machine that Albert Okura keeps in the first display case at his museum. Here in San Bernardino, California, in the building that once housed the first McDonald's restaurant, Okura has collected nearly everything the fast-food chain has ever produced. There are paper cups, paper napkins, Happy Meal toys -- all the consumer detritus of America's golden years -- but nothing is more important to him than this small metal machine. "It was a brilliant idea," he says. "This way, every hamburger is the same."

Okura believes in that idea to this day. It reminds him of San Bernardino's heyday, here in this city where brothers Richard and Maurice McDonald opened their first fast-food restaurant.

Back then, in 1948, people came from all over the country to see the brothers' unusual hamburger stand. One of those people was Ray Kroc, then a traveling salesman for milkshake mixers, who later transformed the San Bernardino hamburger joint into a global corporation worth billions.

Couldn't the same thing happen again? Seventy years after the McDonald brothers, couldn't Albert Okura, son of a Japanese immigrant, one day be discovered in the same way, thanks to a bit of patience and a good idea?

Suspended Services and Pay

On August 1, 2012, San Bernardino filed for bankruptcy. Today this city, located an hour's drive east of Los Angeles, is one of the poorest, most violent cities in the United States. Once the setting for one of America's greatest success stories, the city can no longer even afford to pay its police officers and is rotting in its own waste.

The situation is a catastrophe for everyone who hasn't packed up and moved away. It is also representative of the bankruptcy of a country that failed to use its prosperous decades to sustain a functioning government. Funds are short at all levels, from Washington to the states to the cities and towns. The US is no longer investing in its infrastructure, weakening the foundation that gives all Americans a chance to have a piece of the American Dream.

San Bernardino was the third city in California to declare bankruptcy last year. First came Stockton, in June, followed by the ski town Mammoth Lakes. The majority of American cities are deep in debt, and unlike the federal government, they have limits to the amount of money they can borrow. Their residents are feeling the effects.

Analyst Meredith Whitney, who predicted the fates of Citigroup and Lehman Brothers, warned in late 2010 that the collapse of America's cities and towns was coming. Up to 100 cities were at risk of going broke, she said, and their potential losses could total several hundreds of billions of dollars. This city-level debt, which amounts to a total of $2 trillion (€1.5 trillion), is still less than the $16 trillion debt the federal government in Washington has amassed. But the crisis is leading to considerable reductions in services.

San Bernardino, for example, is no longer even able to pay city employees' salaries. To reduce costs, the city has cut about 20 percent of its employees, with those who remain taking a 10 percent pay cut. The mayor's staff has been reduced from nine to two, and three of four city libraries have closed, as have two centers dedicated to combating gang violence. The police may soon have to share the patrol vehicles of neighboring cities' forces -- which isn't particularly welcome news in a city that had over 32 murders in 2012 and that ranks among the 100 most dangerous in the US.

San Bernardino, population 213,000, is short $45 million for the current fiscal year and is already unable to fulfill even its most crucial obligations, including making pension payments to retired city employees, which were simply suspended.

Trying to Save the City from Abandonment

The financial crisis has significantly reduced the city's sources of income. This includes sales tax, but more crucially property tax on houses and real estate, which are now nearly worthless.

The number of house foreclosures here is three and a half times the national average, and the rate of decline is accelerating every day. Detroit sprays the front yards of abandoned houses with green paint so that it at least looks as if lawns still grew there. But San Bernardino doesn't even have the money for paint.

Beena Khakhria is a real estate agent in San Bernardino. She works for Neighborhood Housing Services of the Inland Empire (NHSIE), a nonprofit organization that tries to save abandoned structures. She bids on foreclosed houses, and if she wins the bid, she has the worst of the damages repaired, replacing rotten window frames and infested floors. Then she looks for buyers, who must prove they plan to live in the city.

It's an attempt to save something that is already beyond salvation. Take, for example, the house on Rose Street, directly across from Interstate 210. The highway is a behemoth of rock and concrete, loud and eight lanes wide. Khakhria would like to buy this three-bedroom, two-bath house. At $56,000, it costs a tenth the price of an apartment in the better areas of Los Angeles. But will anyone want to live in a house facing the highway?

However, Khakhria doesn't have the same worries that real estate agents in better cities do. "The location is perfect," she says. "For my clients, it's an advantage that the highway is so close. It makes them feel safer if the neighborhood doesn't seem completely dead."

The "Me" Culture

The US government's investment in its economy has declined steadily since the 1970s. Publicly held assets accounted for 72 percent of the country's gross domestic product in 1975; today, that amount is under 55 percent. The mayors of individual American cities have certainly initiated construction projects, such as stadiums or community centers, sometimes using borrowed funds, but there is no overarching plan. The federal government no longer undertakes large-scale projects as it did with the Hoover Dam in the 1930s or the interstate highway system in the 1950s.

Meanwhile, in many places, mayors, government employees and police officers have simply helped themselves to city funds, giving themselves higher and higher salaries and creating new privileges for themselves. San Bernardino has firefighters who earn $100,000 a year. At the same time, the city's retirement fund contributions have risen. Now they are three times what they were a decade ago, devouring 15 percent of the city's budget and leaving the city government with its hands tied.

But instead of addressing such problems, public debate has tended to focus on one thing: lower taxes. Property tax in San Bernardino is just 1 percent. It used to be much higher, but was reduced by a referendum, a decision that is now taking its toll. For example, the city lacks a modern transportation system that would connect its residents to the nearby metropolis of Los Angeles without requiring them to navigate the overburdened freeways.

This reliance on public infrastructure is surely what President Barack Obama meant when he declared during his election campaign that entrepreneurial success is not possible without a strong government, telling business owners: "You didn't build that."

Obama's comment was directed at the mistaken belief that each individual is completely and solely responsible for his or her own success or failure. Republican politicians stubbornly block most attempts to increase taxes in the US. Indeed, America is in crisis precisely because it has held this belief in an individual's complete and sole responsibility for far too long.

Dreams and Reality

Albert Okura, the man who owns the museum at the site of the original McDonald's restaurant, founded Juan Pollo, his own fast-food chain specializing in grilled chicken, in 1984. Okura says his success is based on the same principle as the one behind the McDonald's serving machine in his museum: He grills each chicken the same way, down to the second.

Juan Pollo now has 32 locations, making Okura one of San Bernardino's few modern-day success stories. He would like to open a restaurant in Los Angeles, but doesn't have the necessary funds -- a restaurant in Los Angeles would cost much more than all his restaurants in this city where no one wants to live.

Okura calls himself the "Chicken Man" and says his life goal is to sell more chicken legs than anyone else in the world. He's also trying to get his name in the newspaper to help advertise his company. For example, for a festival celebrating the anniversary of the founding of the first McDonald's, Okura rented a sports car and parked it in the museum's parking lot.

He was trying to appear like a successful businessman, but the car was unfortunately stolen from the museum parking lot. The next morning, Okura's name was indeed in the newspaper -- under a headline reading "Car Stolen."

Translated from the German by Ella Ornstein

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1. american dream
susanne316 01/04/2013
Living here 30 years I have come to realize at some point the american people will stand up and do the right thing. The extreme fractions have held america hostage for far too long and judging by the last election are finally waking up. The house is up for election in 2 years and after that I am sure the gridlock will finally end. The hate for one black guy from Chicago can not go on anymore. Enough is enough! There are a few other cities in the USA that are experiencing such hardship ..it has got to end!
2. Factual Misunderstandings in article on San Bernardino
bradywestwater 01/06/2013
I am not certain if the main problem is how this article was translated into English - or how much of it's problems are due to a lack of understanding of the very complex issues facing cities such as San Bernardino - but it give a very incomplete - and at times even inaccurate - view of the situation. On the issue of building a direct transit lines to Los Angeles - that is not an issue any distant suburban city has the resources - or even the legal authority to do. That is strictly done my multi-county regional agencies - and it has been done. There are daily commuter trains - run by Metro-Link and Amtrak that connect San Bernardino to the heart of Downtown Los Angeles - and to the business districts of dozens of other cities in multiple counties in Southern California. There are also express buses that use the El Monte Busway - along with other routes - that also directly connect San Bernardino to Downtown Los Angeles and dozens of other regional jobs centers. On the issue of property taxes, first the amount given is wrong. The one percent is only the baseline amount - there are then multiple other property taxes - either as an additional percentage - or as a per parcel tax and voters can - and have approved - above the one percent minimum that is collected. In addition, the article seems to state this was a tax limit placed by the voters of San Bernardino which is incorrect. It was a state wide vote - not a local choice. There are also numerous other other factual errors that are a result quoting a few statistics but not understanding enough of their context to correctly interrupt them. And completely left out of the article were some of the unique problems that San Bernardino faced and which largely caused its short term problems while other cities around it were able to survive the recession. However the article did address - briefly - the only real long term problem facing cities such as San Bernardino. And that problem is the main reason why so many US cities are facing major financial problems. Overly generous, inflation adjusted public employee pensions and health benefits are escalating so rapidly - that no matter how high taxes are raised - it is now impossible for any city such as San Bernardino to survive unless those costs are brought under control.
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