Stockton, California, which is heading toward the first steps of Chapter 9 bankruptcy, is described as a crime-racked wretch designated by Forbes magazine as the most miserable city in America.
But it would be wrong to believe that the troubles in the city of almost 300,000 residents in the agricultural San Joaquin Valley are not necessarily a sign of things to come in more upscale municipalities across the state.
Unfortunately, the financial mess in Stockton echoes problems throughout California, even though public-sector union leaders and Democratic state legislators are in denial about this reality. In cities as affluent and diverse as San Jose and San Diego, municipal finances are hitting the wall, driven by unsustainable pension debt and health-care promises made to government workers during more flush economic times.
Stockton has not been a prime location since the Gold Rush, but only a few years ago it was a reasonable destination for commuters who couldn’t swing the prices in San Francisco, about 80 miles west. Now the murder rate is at record highs, and the police union is in a pitched battle with the new city manager. The debt-laden downtown redevelopment area looks like a ghost town, and the city is littered with foreclosed properties.
Stockton is also in the news as the test case for a new state law intended to put the brakes on municipal bankruptcy. It’s a reminder not just of how far and fast a city can fall, but also of problems that are festering everywhere.
‘Ponzi Scheme’
“There was no money set aside to fund those commitments,” Stockton City Manager Bob Deistold Capital Public Radio in reference to $760 million in city debt and unfunded liabilities. “While that was a legal decision they made over 20 years, it was an unsound decision and it has similarities to a Ponzi scheme.”
Blaming past councils, Deis pointed to a health-care plan that pays the entire cost of care for every city employee and spouse for life, after only one month on the job. “In my 32 years of managing finances for various local governments, I have never heard of a situation like this,” he added.
As Bloomberg News reported, the city “granted employees some of the state’s most generous benefits, and now has 94 retirees with pensions of at least $100,000 a year -- more than twice as many as some comparably sized California cities.”
Statewide there are more than 15,000 California government retirees who are members of the $100,000 pension club.
The Stockton police union, which had previously paid for ominous-looking billboards welcoming people to the second most dangerous city in California, is sure there’s some secret fund of money somewhere. Like most California unions, it refuses to recognize the state of affairs driven by the pension and health-care benefit upgrades they succeeded in attaining, mostly in the past decade. Instead of working toward reform, California’s unions and their political allies are trying to stop every possible relief valve short of huge tax increases.
For instance, the new state law requires a 90-day mediation period before bankruptcy can be declared, a watered- down version of a union-backed bill that would have required approval by a committee before cities could proceed with abrogating their debt loads. Previously cities, such as the similarly crime-plagued Vallejo on the northeastern edge of the San Francisco Bay Area, could declare bankruptcy on their own. Vallejo recently emerged from bankruptcy without seriously reworking its pension plans, however, which is a reminder to bankruptcy advocates that it can be helpful but won’t solve everything.
The state’s pro-union forces aren’t content slowing the bankruptcy process. They are committed to halting any serious reforms that would keep cities from reaching that last-ditch process. Read more...
