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Biggest Urban Bankruptcy in US History Coming Tuesday?

With about 300,000 inhabitants, Stockton, California would be the largest city in the history of the United States to go belly up. This is likely to happen on Tuesday; the city has huge debts for white elephant development projects along with massive unfunded retirement and health care obligations, and its tax revenues have gone down the toilet as property values collapsed.

Stockton clearly has some of the dumbest municipal leaders in US history. They fell for all the crazy ideas that have caused cities around the country to lose their shirts: expensive new sports facilities, a shiny watefront, a fancy new city hall, an arena. (Neil Diamond opened the arena with a $1 million taxpayer funded concert back in 2006.)

This wasn’t enough for them. They promised the sun and the moon and the stars, including free lifetime healthcare for retirees, to city employees. To make sure they could pay, the city’s leadership took out large loans to make a risky market investment. (The investment has lost a fifth of its value.)

But why not live a little, the city leaders thought.  Real estate values were soaring and the city was in the midst of a massive construction boom.

Now Stockton is the foreclosure capital of America. It has cut the police force by 25 percent even as crime soared. Street gang members apparently taunt police officers by asking them when they are going to be laid off. Fire fighters have been cut 30 percent. Other city employees: 40 percent.

Those beautiful retirement health care benefits are gone with the wind; slashed by up to three quarters now, and probably they will be eliminated completely.  It’s likely that in bankruptcy court retirees will have their pensions cut back. There isn’t any money to pay them.

It’s easy to mock the stupidity of Stockton’s leadership, but the bad ideas that got the city into trouble are pretty widespread. How many downtowns in America have been the scene of foolish urban development projects that never really work? Pedestrian malls without pedestrians? Shopping arcades without shoppers? How many white elephant convention centers and sports arenas have foolish city governments (often under pressure from construction companies and unions) funded over the years? How many jurisdictions have assumed that temporary revenue increases in boom years were here to stay and added permanent positions and costs on that assumption? How many cities and states have made glittering promises about retirement benefits and health care to their workers without making prudent provision to honor those promises when the bill comes due?

Stockton is an exceptional case of greed meeting stupidity, but it is not alone in facing these kinds of problems. Americans around the country need to pay more attention to state and local policies and politics than they do; the citizens of Stockton will be paying for their leaders’ mistakes for decades to come.


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  • Lorenz Gude

    Picture a typical American commercial strip, then picture the entire street lined with MacDonald’s franchises cheek by jowl. That’s what happens when somebody comes up with a good idea and people start to think it’s ‘money for jam’. Suddenly everyone is doing it and then… don’t work so good no more.

  • Anthony

    “Americans around the country need to pay more attention to state and local policies and politics than they do.” Enough said, now how do we engage without rancor.

  • Kris

    One of the regular commenters should be happy: the word “Blue” does not make a single appearance in this post. 🙂

    “Stockton clearly has some of the dumbest municipal leaders in US history.”

    I shudder to think of the intelligence of the followers.

  • Gary L

    Why doesn’t Stockton just increase taxes on the rich? That will solve the problem .

  • Vera

    Gary L. – I hope your question was pure sarcasm. Stockton does not have “rich”. Stockton was blue collar town, now over-run with illegals, section 8, welfare queens and gangs.

  • RKae

    Did they also send money to a Nigerian prince? ‘Cause they certainly did everything short of that!

  • RKae

    Gary L:

    Raising taxes on the rich isn’t enough. They also need lots and lots of illegal aliens, because, as we’ve repeatedly been told, illegal aliens are a boon for an economy.

  • Tyrone

    Why doesn’t Stockton just increase taxes on the rich? That will solve the problem.
    We’re talking about Stockton. Stockton.

  • Tyrone

    Also, taxing the rich is not the solution.
    Living within ones means is the answer. This applies to individuals, households, and communities. Did you NOT read the article?
    And the housing bubble fed the belief of the sheep that you could become wealthy through “home ownership”.
    The way we all get back on track is through productive capacity. That is how wealth is created.
    Sadly, this will not happen. Austerity is coming the USA.
    But watch what they do with Gold. It is going to shock the planet. But you’re all probably selling your Gold, right? LOL

  • Jim.

    What could save Stockton?

    Saying “to [perdition] with the delta smelt”.

    California’s Central Valley is the best agricultural land in the world. No exaggeration. The only complication is, it doesn’t get enough rain.

    So, if irrigation water is available, it blossoms, and prosperity follows. (Even for the illegals.)

    It’s Green vs. Blue all over again.

  • The MUSEman

    The sad irony is politicians who look no further than the next election are the ones who pick on CEOs, claiming they don’t look past the next quarter. They may deserve each other, but we don’t deserve them.

    Thanks for reading!

  • Mike McCormick

    ” … the citizens of Stockton will be paying for their leaders’ mistakes for decades to come.”

    Stockton will still have citizens capable of paying anything at all?

  • whitehall

    Stockton has had little reason to think it something special. While, at best, pleasant enough, basically it is a nitty-gritty place that got the Big Head.

    “Pride goeth before destruction, and a haughty spirit before the Fall.”

    True for cities too.

  • Jim.

    By the way, can anyone explain the difference between “huge debts for white elephant construction projects” and deficit spending in the name of Keynsian stimulus?

    Want government to contribute to recovery? Find some regulations putting a spike in growth, and get rid of them. The only difference extra spending will make is to make things more painful when you have to get rid of the spending.

    Has anyone else seen Obama bragging that federal spending (which was at dizzying “crisis” levels when he was sworn in) hasn’t gone up much? That’s effectively bragging that we’ve been in a crisis for the last four years an he’s been helpless to stop it.

    There are not enough good years in any business cycle in history to cover the deficits we’re running now. We’re just going to have to bite the bullet and cut the spending. Hopefully we can do that before the debts get any worse, and we have someone in the White House with the will to find the regulations we can cut to get the economy going again despite falling Federal spending.

  • Exurban

    I’m pretty sure Gary L. was kidding, but the idea of “rich” in Stockton is indeed risible. Get this, however – agricultural demand is up, largely due to the increased buying power of Chinese and Indians, and the Central Valley’s agriculture is benefiting already and could benefit a lot more if the EPA got out of the way. Stockton is bankrupt now, but the area may actually be poised to boom.

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