The vast majority of the articles about Stockton, CA, going bankrupt either don’t mention why or they come up with somewhat preposterous explanations. Such as we see here, from the Los Angeles Times:
Stockton braces for possible bankruptcy as key vote looms
June 26, 2012
Stockton residents braced for a fateful City Council meeting on Tuesday night that could result in the city declaring bankruptcy.
The prospect of insolvency was generating national headlines Tuesday…
The working-class port city — where much of California’s agricultural exports set sail — lived largely on credit during economic boom times. The city borrowed millions of dollars for ambitious, eye-catching projects in the mid-2000s. Up went a sports arena, hotel and promenade. The city booked a Neil Diamond concert as a kickoff to better times. Houses in sprawling tracts sold quickly and with high mortgages…
Really? Booking a Neil Diamond concert is to blame?
Compare and contrast that explanation with some of the reasons detailed in this Wall Street Journal editorial:
Down and Out in Stockton
The latest city to confront bankruptcy and how it got there.
June 26, 2012
… Unions are blaming Wall Street and the foreclosure crisis for the city’s woes. Like many other cities in California’s inland regions, Stockton suffers from a high foreclosure rate, which has depressed property tax revenues and helped push the city’s unemployment rate to 15%. The city of 290,000 also borrowed millions for projects that urban planners hoped would goose the economy and tax revenues—such as a $129 million waterfront development, a $68 million arena for minor league hockey, and a $35 million city hall that has since been repossessed.
Still, debt financing is not the city’s main cost driver. That would be labor costs, specifically retirement benefits. The city has a little over $300 million in general-fund backed debt, but an $800 million unfunded liability for pensions and retiree health benefits…
Pension costs are about 40% of what the city pays on worker salaries and are also growing. The average firefighter costs the city about $157,000 a year in pay and benefits and can retire at age 50 with a pension equal to 90% of his highest year’s salary plus nearly free lifetime health benefits.
The city has laid off a quarter of its police officers, 30% of its firefighters and 43% of general city staff to pay for these generous benefits. Yet the city still faces a $26 million deficit on a $180 million budget…
In other words, Stockton has laid off a quarter of its police, 30% of its firefighters and 43% of general city staff in order to pay for their generous benefits to retired cops and firefighters and city workers.
Unions have made few concessions save agreeing to give up sick leave payouts and scale back pensions for new hires—when there are any. City officials could freeze worker pensions and reduce benefits going forward, as San Jose did via ballot initiative earlier this month. However, such a move would set off an expensive and protracted legal battle with the unions, which a city on the edge of bankruptcy can hardly afford…
Yes, Stockton is really in a bind. But it is a bind of their own doing.
And it has almost nothing to do with their building projects and everything to do with far too generous pensions and benefits given to their public sector unions.