Stockton, the small resort city South of Sacramento, California sought bankruptcy protection from its obligations last summer. The bankruptcy filing by Stockton, more than 290,000 residents, has been closely watched by both bond insurers who guaranteed the city’s debt and CalPERS, the state pension fund for public workers.
Retiree health care, financed by most California cities on a pay-as-you-go basis, and pension payments based on union agreements pushed Stockton, along with several other California cities into bankruptcy.
New Stockton mayor, Anthony Silva brought with him armor and a helmet (which he donned) during his unique State of the City address this week. The mayor plead with city residents to join him in helping clean up the city both literally and figuratively. The mayor believes raising taxes is the only way the city will be able to improve safety in the crime ridden city. At over 14% unemployment it is expected that Silva will meet opposition among both the council and residents to his plan.
Stockton, CA – This city may be the first in California to declare bankruptcy. The city, in spite of cutting police, fire, and anything else it could think of, is still running in the red, and cannot make its bills. Why? Pensions and benefits for retirees have literally taken over the budget to the point where the city has been cutting back on services to residents to meet those bills. And the first ones to scream if Stockton does declare bankruptcy will be the unions. The following clip explains at least in part which city bills will take priority in the case of bankruptcy.
While many businesses have gone down the drain because of pensions and retiree benefits draining their assets, it is not as common as it once was. That probably has something to do with the fact that there aren’t as many unions in the private sector anymore. What we are seeing in Stockton is the future for many cities across the country, primarily because of contracts negotiated by public sector unions. While this is a very basic statement about the impending problem, it isn’t extremely difficult to understand. It is yet another economic issue that is at least an indirect result of the Baby Boomer generation reaching retirement age. But, unlike Social Security, this problem is theoretically negotiable, especially when cities make the decision to declare bankruptcy.
At that point, all contracts with the unions are nullified, and cities are in a position to re-negotiate terms with public sector unions. But, would we have been in this situation in the first place if city leaders had started thinking like business owners years ago? Probably not. Conservatives have been saying for years that spending money without serious plans to repay debts in the future is a mistake. In Stockton, even the leaders have admitted that they spent too much when times were good, and failed to “save for a rainy day.” But, they’re politicians, not business people.
Matt Edelstein, otherwise known as Shoq on Twitter, decided to weigh in on this. Well, he decided it was a good idea to pose what he obviously thought was a difficult question for me. I didn’t respond via Twitter, so maybe he’s deluded into thinking that he stumped me.
If municipalities were run more like big businesses, it is less likely that they would end up like Stockton. As for businesses making the laws of the land, gieven our current economic woes, that is exactly what we need. It has been made abundantly obvious that every level of government in this country is either ill-equipped, or unwilling to do what needs to be done to kick start our economy. More often than not, the fact is that government doesn’t need to do a damn thing – it needs to stop what it’s doing, and get the hell out of the way.
What happens when a city spends more than it takes in? Caught up in the boom times of the Silicon Valley, this city bought land and buildings beyond what it could afford, expecting that value would continue to rise. Today it is defaulting on bond repayments causing banks to seize property and laying off public workers threatening the safety of the citizens. Take a look at Stockton, CA as it edges closer to bankruptcy.