ogc163
Superstar
Great summer investors are having. Greece is in default. Italy and Spain are slouching toward insolvency. And now Stockton, California may become the largest U.S. city to declare bankruptcy. If only politicians paid as much attention as the markets.
As we went to press last night, Stockton's city council was poised to approve a budget plan for a possible bankruptcy filing, which could come as soon as Wednesday. According to city manager Bob Deis, bankruptcy is the only way to preserve a minimal level of services and public order. Stockton has the second highest violent crime rate in the state.
Even so, bankruptcy wasn't inevitable. A new state law mandates that municipalities engage in a three-month confidential mediation with creditors and unions before declaring bankruptcy. But Stockton's unions haven't acceded to the significant benefit changes needed to rationalize the city's fisc. And creditors have resisted a reprise of the Chrysler bankruptcy in which investors got scalped while the unions walked.
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 revenuessuch 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.
The latter, which are not pre-funded, are expected to grow by 7.5% annually for the foreseeable future. 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. Soaring retirement costs mean that the gap will grow even if the city's housing crisis ebbs and revenues begin to recover. You can't build a city on debt and retirement checks.
Unions have made few concessions save agreeing to give up sick leave payouts and scale back pensions for new hireswhen 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.
Mr. Deis, the city manager, has said he won't try to modify pensions even in bankruptcy because of the cost of litigation. The California Public Employees' Retirement System pushed back hard when some on Vallejo's city council suggested restructuring current worker pensions in bankruptcy court a few years ago. That California city instead cut payments to bondholders, modified pensions for new hires, and scaled back retiree health benefits. Stockton is likely to do something similar.
But perhaps a better model for Stockton and other insolvent cities is Providence. Rhode Island's capital city earlier this year faced a roughly $30 million structural deficit, $900 million unfunded pension liability and a shrinking tax base. Its city councilall Democratsaverted bankruptcy by voting to cap pension benefits at 150% of the median household income and suspending retiree cost-of-living increases. City workers and retirees overwhelmingly backed the deal.
Providence heeded the canary in nearby Central Falls, which declared bankruptcy last year after workers and retirees refused to renegotiate their retirement benefits. Their pensions were cut by half in bankruptcy. Central Falls provided an instructive lesson in the high costs of delaying reform for Rhode Island's government workers and lawmakers.
Stockton likewise offers a rebuke to those who don't believe that union entitlements can drive governments to insolvency. Its lesson ought to teach Sacramento, if that capital's politicians were capable of learning.
Review & Outlook: Down and Out in Stockton - WSJ.com
As we went to press last night, Stockton's city council was poised to approve a budget plan for a possible bankruptcy filing, which could come as soon as Wednesday. According to city manager Bob Deis, bankruptcy is the only way to preserve a minimal level of services and public order. Stockton has the second highest violent crime rate in the state.
Even so, bankruptcy wasn't inevitable. A new state law mandates that municipalities engage in a three-month confidential mediation with creditors and unions before declaring bankruptcy. But Stockton's unions haven't acceded to the significant benefit changes needed to rationalize the city's fisc. And creditors have resisted a reprise of the Chrysler bankruptcy in which investors got scalped while the unions walked.
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 revenuessuch 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.
The latter, which are not pre-funded, are expected to grow by 7.5% annually for the foreseeable future. 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. Soaring retirement costs mean that the gap will grow even if the city's housing crisis ebbs and revenues begin to recover. You can't build a city on debt and retirement checks.
Unions have made few concessions save agreeing to give up sick leave payouts and scale back pensions for new hireswhen 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.
Mr. Deis, the city manager, has said he won't try to modify pensions even in bankruptcy because of the cost of litigation. The California Public Employees' Retirement System pushed back hard when some on Vallejo's city council suggested restructuring current worker pensions in bankruptcy court a few years ago. That California city instead cut payments to bondholders, modified pensions for new hires, and scaled back retiree health benefits. Stockton is likely to do something similar.
But perhaps a better model for Stockton and other insolvent cities is Providence. Rhode Island's capital city earlier this year faced a roughly $30 million structural deficit, $900 million unfunded pension liability and a shrinking tax base. Its city councilall Democratsaverted bankruptcy by voting to cap pension benefits at 150% of the median household income and suspending retiree cost-of-living increases. City workers and retirees overwhelmingly backed the deal.
Providence heeded the canary in nearby Central Falls, which declared bankruptcy last year after workers and retirees refused to renegotiate their retirement benefits. Their pensions were cut by half in bankruptcy. Central Falls provided an instructive lesson in the high costs of delaying reform for Rhode Island's government workers and lawmakers.
Stockton likewise offers a rebuke to those who don't believe that union entitlements can drive governments to insolvency. Its lesson ought to teach Sacramento, if that capital's politicians were capable of learning.
Review & Outlook: Down and Out in Stockton - WSJ.com
face my first time driving through stockton. I went to visit my friend out at university of the pacific back in 08. It was like some desolate ass wasteland, on some mad max/fallout type shyt. Every building I saw was like:liquor store, gun store, adult school, night school, 7 eleven, gun store. I saw tumble weeds and dirty dusty ass lookin people everywhere. I was like DAMN!
"
and neither will any silver tongue politician nor their "party". 