Stockton, Calif., is bankrupt, but its troubles are no fluke.
In fact, California’s 13th-largest city — a former Gold Rush boomtown, and home to one of the largest inland ports in the world — has been broke for quite some time. The City Council just made it official this week.
How bad is it?
In the past three years, the city cut $90 million from its budget and laid off a quarter of its cops and about a third of its firefighters. Park upkeep and street sweeping went by the boards. Libraries slashed hours. Every city worker took a pay cut.
And that wasn’t enough. Not even close.
Sure, the lousy economy didn’t help. When the housing bubble burst, Stockton suffered more than most. Property- and sales-tax revenues plummeted. The city has one of the highest foreclosure rates in a high-foreclosure state.
But the big problem was the stupid decisions Stockton officials made when the economy was flush. Like so many other near-sighted local politicians, they assumed the good times would never end.
City Manager Bob Deis, who took his job in 2010 when the housing market was still in freefall, summed up the situation as well as any bureaucrat could: “Stockton overcommitted to long-term obligations that even under the best of times the city could not afford.”
And how. Today, Stockton strains under $700 million in bond debt the city borrowed to finance a sports arena, a fancy new waterfront — and to shore up pensions and benefits for retired city workers.
When Deis came on the scene, he dug into the city’s ledgers and could hardly believe what he found. Comparing Stockton’s finances to “a Ponzi scheme,” he discovered, among other things, that employees and their spouses receive free health care for life — a benefit some got after only a month on the job.
Truth is, the bankruptcy bomb should’ve gone off months ago. But under a state law that cunning legislators passed last year at the behest of their public-employee-union benefactors, Stockton had to “mediate” with its creditors for 90 days before seeking Chapter 9 bankruptcy protection.
Those negotiations were held behind closed doors, but the outcome is plain as day: Stockton’s public employees refused to renegotiate the generous benefits that drove the city over a fiscal cliff.
For the moment, Stockton holds the record as the largest US city to go bust. That dishonor previously belonged to Vallejo, Calif., a former Navy town up the road from Oakland.
Vallejo declared bankruptcy in 2008. The story there was much the same as Stockton’s now: mass layoffs affecting all but a few city employees. Police and fire protection slashed. Closed libraries and parks.
One thing Vallejo didn’t do was touch retirement benefits. Officials said they just couldn’t afford to fight the unions in court.
Vallejo emerged from bankruptcy on somewhat surer fiscal footing last year. But as long as the growth of retirement benefit costs remains unchecked, no city is safe.
Stockton is in immensely worse shape today than Vallejo was four years ago. Yet its problems pale in comparison to the crisis looming in Los Angeles.
LA Mayor Antonio Villaraigosa famously vowed the city wouldn’t go bankrupt “on my watch.” But his term happens to end next year, right about the time the city’s budget deficit is expected to jump from $222 million to $427 million — driven almost entirely by labor costs.
Delaying the inevitable didn’t help the people of Vallejo or Stockton, and it won’t save Los Angeles and other cities from a similar fate.
Stockton is a sensation and a cautionary tale — but the worst is yet to come.
Southern Californian Ben Boychuk is an associate editor of the Manhattan Institute’s
City Journal
and contributor to PublicSectorInc.org.