Stockton, California Went Bankrupt. Is Your City Next?

Stockton, California made history in June 2012 when it became the largest U.S. municipality in history to file Chapter 9 bankruptcy. It wasn't the first Golden State city to do so, and what's happening in out west is spreading to the rest of the country.

Stockton, like many U.S. city governments, spent lavishly throughout the 1990s when the real estate bubble filled public coffers with property tax revenue. Public officials approved big public works projects such as a new arena, a waterfront park and a grand, new city hall building that the city government never had the money to occupy. But even this spending pales in comparison to Stockton's crippling public employee contracts. The city is on the hook for more than $800 million in unfunded liabilities for pensions and other post-employment benefits.

"We're saddled with this debt that we don't have the revenues any more to service," says Stockton's Vice Mayor Kathy Miller.

Miller lays much of the blame at the feet of former city manager Dwayne Milnes, who she says was tired of dealing with public employee unions and who, through his loose accounting, enabled city council members to give in to nearly every union demand.

"[The information] was not always accurate. And in some cases, I think it was almost misleading," says Miller.


Milnes now runs an association representing the interests of the city's retired public employees, which opposes cuts to some of the very benefits Milnes now admits might have been a mistake to approve. Milnes believes that Stockton would be broke regardless of the decisions made in the '90s.

"When you ask who's going to tip over, it's not 'Who is providing the pension benefits?,' it's, 'Who is providing the pension benefits in an economic environment that they can't support it?'" says Milnes.

Reason Foundation senior analyst Adam Summers says that Stockton's story is becoming an increasingly common one for cities across the U.S.

"There's a real kind of moral hazard, whereby [city officials] have incentives to offer goodies to people, knowing that they won't have to bear the costs of those decisions," says Summers.

In Stockton, residents, taxpayers, and retirees are bearing the costs of short-sighted political decisions. Stockton's general fund, meant to be for basic city services such as police and fire, has been gutted by the poor fiscal decisions, resulting in a 26-percent reduction in city police. Last year, a record murders took place in Stockton. This year, they've already had 34.

Stockton officials hope bankruptcy proceedings will allow the city to opt out of some of its more stifling contracts (PDF) and to avoid repaying all of the bondholders while maintaining some money in the general fund to keep its most basic city services. Such a solution might give Stockton some breathing room but most of the hard work of rebuilding the town's economy, tax base, and creditworthiness is still ahead of it.

This much is certain: With cities across the country locked into expensive long-term contracts, Stockton's title as the largest U.S. city ever to go bankrupt might be short-lived.

About 9 minutes.

Written and Produced by Zach Weissmueller. Music by Case Newsom, Century of Aeroplanes, and Dexter Britain.

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[bereal2us]

Don't let this council woman fool you. She invested in a tax payer subsidized restaurant that was to receive 5 years of free rent. She saw an opportunity but it flopped. It was located below a low income housing hotel. We have many of those. The average dish was over $15. She tried to get rich off us. Look it up, its public. She also, 9 months before defaulting on a bond payment, stood by our city manager as he publicly said we will not be defaulting on any bond payment.

[John Doe]

Kathy Miller is part of the problem. She invested $50,000 of her own money in a RDA project and then the City backed it with 2.7 million dollars of City Money.

Google - Kathy Miller, Paragary's, 50000

[Bluto2973]

I understand the law. Who do you think lobbied Congress to prevent us from purchasing insurance policies across state lines? Health insurance is a government-controlled monopoly that benefits only the insurance companies over the common man. Obama is nothing more than a whore for those companies just like the neocons. The administration had to get the insurance executives on-board to pass this bill. Do you think they're going to support a bill that cuts into their bottom line? Wake up!

[Connatiah1]

Respectfully speaking, who ever told you that chit is a liar, It is just the opposite if we don't implement Obamacare the insurance companies will rip you off. You should study the law, before commenting; unless you are a insurance company troll.

[Bluto2973]

Obamacare is a scam of a bill written by insurance and pharmaceutical companies to line their pockets. It will do NOTHING to curb insurance costs. See, we've gotten away from what insurance is. You're just insuring yourself against something that is UNLIKELY TO HAPPEN. It's not there for check-ups and "preventative" care. Does your car insurance pay for oil changes and tune-ups? Because of the mandate, costs will skyrocket. The government needs to get out of the insurance business.

[Bluto2973]

I hope the present GOP isn't supporting a democracy. Democracy means "majority rule." That's why we are a constitutional republic. So we agree with the crimes of "free" trade. The difference between you and I is that you expect the government (taxpayer) to provide the citizenry with "stuff"; e.g., housing, health care, etc. Those are goods that you work for. You, and only you, are responsible for yourself. And I'm glad the GOP is obstructing Obama. He needs to be stopped.

[Bluto2973]

Commiefornia is 20 billion in the hole. Did the Republicans do that? The liberals think everyone deserves a home, so they decided to use taxpayer money to guarantee mortgages for people who wouldn't otherwise qualify. How'd that work out? We in the financial world call that a bubble created by horrible monetary and government policy -- not to mention the cheap money and artificially low interest rates. The unions and Democrats' days are numbered. More will join the freedom movement.

[Connatiah1]

Definition of GO-Propagandi: The Republitcans trying to convince the voters that we are all alike that they have no fault in the bankruptcy, jobless economy, and it is just as much fault as the democrats.

Thanks for you inquisition

[Connatiah1]

Obamacare. What they don't tell you is that most Americans that are allowed to have healthcare pay a high monthly rate that requires the buyer to pay up to $5000/yr. before any coverage is started after that they only pay 70 % up to 250k, and are subject to being denied several times. Obamacare is a max of $3800/yr and coverage is complete. One must ask themselves are the reps fascist that are opposed?

[Connatiah1]

This may surprise you Gomer, but I totally agree with the fact that you brought up about Clinton. He also signed NAFTA and GATT. I am not a Clinton supporter, nor did I vote for him. I voted for Perrot and Nader. But, the reality is the present GOP is not supporting a democracy. Tools of fascism (please look this up) are obstruction and gerrymandering, which do not support the supreme power of government unto the population (I can no longer use the word people, because of Citizens Untied)

[Bluto2973]

Oh yeah, the Republicans did it. It's all Nixon's fault, right? I hope those bastards enjoy the blue state hellhole they created. Oh, btw, who signed legislation repealing Glass-Steagall? I think his first name is Bill and his last name is.... ummmmmm...............Clinton? Is that the guy?