West Coast Woes: What’s occurring in Stockton?

March 19th, 2014

Detroit, of course, has taken over the dubious honor, but Stockton, Calif. was the country’s largest municipal bankruptcy when city leaders filed Chapter 9 in August 2012 with a reported budget shortfall of $26 million. (The city of roughly 300,000 has an annual budget of $521 million.)

What’s been at issue in the northern California city’s fiscal woes, according to Time magazine:

There are many reasons why Stockton was one of the hardest hit American cities in the Great Recession – a housing bubble, debt spending on white elephant projects (like a downtown arena which is rarely full), fiscal mismanagement, and unrealistic pension return expectations and under-funding during boom times all played a part.

Next Chapter’s Detroit Journalism Cooperative partner Bridge Magazine sent writer Ron French there last year as well as to nearby Vallejo, Calif., which had recently exited bankruptcy. French reported being told “you ain’t seen nothing yet” as he looked to those cities for what Detroit might expect as it moved toward its own bankruptcy filing:

Our postcards from those troubled cities aren’t pretty. Both face problems strikingly similar to Detroit. And while few question the necessity of the bankruptcies, residents wonder whether the painful fiscal fixes will be enough to keep the cities afloat.

One of Stockton’s widely reported problems is the effect of the exodus of city workers, mainly cops. It seems that public sector workers in California cities where leaders attempt money-saving pension reforms often transfer to other municipalities. About 90 percent of cities are under the state pension system, so workers retain their benefits when they change, say, police departments. But as Stockton lost police officers faster than it could replace them, 2012 saw a huge spike in crime, Time reports.

Voters there approved a sales tax last year to pay for 120 new police officers. Funds from the tax are also targeted for other city operations and should help the city emerge from bankruptcy. A citizens watchdog committee is in place to oversee the spending.

Meanwhile, Stockton has filed and the city council approved its Plan of Adjustment. The city’s bankruptcy trial is scheduled for May 12. One creditor remains, Franklin High Yield Tax-Free Income Fund and Franklin California High Yield Municipal Fund, and the sides are not close to an agreement, reports The Record, Stockton’s local newspaper.

Still, the city projects a $10 million budget surplus when the fiscal year ends in June.

Turnaround, quite possibly, is happening there.