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Judgment Day: Stockton is Bankrupt


Stockton, California has officially become the most populous city in America to file for bankruptcy. A judge ruled today that creditors did not negotiate in good faith with the insolvent city, making Stockton the first US city since the 1930s to use bankruptcy as protection against paying its debt in full. Bloomberg reports:

Without bankruptcy court protection, Stockton’s creditors would be free to sue the city in state court, where it’s easier to force asset sales, cuts in city services or a boost in revenue to pay debt. While in bankruptcy, Stockton is shielded from such tactics and has more power to choose which bills to pay.

Before filing for bankruptcy in June under Chapter 9 of the U.S. Bankruptcy Code, the city asked bondholders and other lenders owed more than $300 million to take less than full repayment. The city listed assets of more than $1 billion and debt of more than $500 million in its bankruptcy petition.

Among other things, the city will soon stop paying for a retiree health care benefit (unfunded liability: $417 million) that allowed city employees to qualify for lifetime health coverage after only one month on the job. In the coming months, retirees will likely see sizable cuts to their pensions. Severe service cuts are also inevitable.

Stockton is already burdened with 18.7% unemployment and the highest foreclosure rate in the US, and now things are going to get much worse. These are the consequences of pursuing so many expensive public projects and endless employee benefits. The city’s leadership simply assumed that revenue would increase indefinitely. Now it’s all come tumbling down, and pensioners and the poor will suffer the worst of the fallout.

It’s hard to see how the state could be experiencing a “comeback” when multiple cities are declaring bankruptcy—San Bernardino is up next. This is just the beginning of Stockton’s legal and financial mess. The effect of today’s decision will be closely watched by unions and insolvent cities across the country.

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  • Luke Lea

    “lifetime health coverage after only one month on the job”

    Is that seriously true? Seems inconceivable.

    • Robert Hardin

      They relied on our disinterest and ignorance while they robbed us blind.

      • grahambanks

        It appears to be true, yet they all lost coverage today, and no one will be getting it for “the rest of their lives.”

        • Jack_Kennedy

          luv when a plan comes together…………BRING ON THE NEXT BANKRUPTCY

        • heatherGirl

          Sure they will…. ObamaCare!

    • MildlyAmused

      This is why PUBLIC UNIONS are hopelessly and unavoidably corrupt. The cycle works like this: 1) Unions give money and ground forces to support politician. 2) Politician then gives public unions gold plated pensions and benefits, paid for by taxpayers, in return for continued support (more money and votes). 3) Taxpayers get screwed. 4) Town goes bankrupt.

  • Chris Bray

    How absolutely flawless that Stockton was approved for bankruptcy protection on the same day Paul Krugman published a column about California titled, “Lessons from a Comeback.”

    • Atanu Maulik

      Krugman never ceases to amuse people.

      • Jack_Kennedy

        as the bozo crowd takes krugman’s words to heart

    • MildlyAmused

      Krugman is the biggest idiot to ever win a Nobel Prize (and that is saying something when you have Al Gore and Obama as past winners). Another headline today stated “California has $127B in unfunded liabilities.” Krugman is a joke to be patently dismissed as the partisan clown prince of failed Keynesian theory.

    • TheResistance

      Oh that’s rich. Put that in your crypto-Keynesian crack pipe and smoke it, Paul. Can’t wait to read it, I enjoy his stuff because its so hysterically biased. Unfortunately he’s shrewd and powerful, though. Only a matter of time until he finds a way to unleash hyperinflation to erase the debt— the final confiscation. If you follow him you know he’s been wishing for increased inflation forever. Screw the savers and save the deadbeats.

  • Anthony

    An economy based on real estate speculation collapsed. I’m shocked. One of the lessons from the European disaster is that a welfare state is ok, provided that you have the private economic strength to pay for it. Germany and the Scandanavian countries can afford to be generous because they all have a strong private economies, whereas the southern countries cannot afford a welfare state because there private economies were too unbalanced in favor of real estate speculation.

    Also, lets remember that in the 70s and 80s, taxes in Sweden got to be too high and the private economy suffered. So they cut the tax rate and reduced their welfare state to a more manageable level. These cities in California will need to go through a similar process. Militant public employee unions should take note: if you don’t compromise in coming up with a benefit framework that allows these cities to survive, your members could actually end up with nothing.

  • Matt_Thullen

    This is also going to be bad news for many other California cities, as creditors now start pricing in the risk associated with cities trying to stiff lenders in favor of CalPers and their own unionized employees. It still amazes me that some people don’t understand that actions invite reaction, and that taking actions now to cause lenders to take unexpected losses will result in higher borrowing costs in the future.

    • bigfire

      As I’ve say in previous response. Calpers acted like gangsters in Good Fellas. They want their cut, no matter what. And if the things get rough, they burn down the place and collect on insurance.

      After California burns down to the ground because there are no more public employee, only pensioners and one guy writing the pension check, Barack Obama will write them a big bail-out check. So that counts as insurance.

      I live in Los Angeles. On a weekly basis on the news radio or local talk show I hear the commercial touting California bonds, and think to myself, why are they pushing so hard to get non-institutional buyers to get into this market? They even tout you the listener’s ability to get into the action before institutional investor. Because the institutional investors will be insane if they continue to buy these worthless papers.

  • Atanu Maulik

    This is where democracy saves the day for the US. It ensures that even if a stupid demagogue assumes power, that power is not absolute and wrong policy decisions are not enforced on the entire nation. Each state can act as a laboratory where competing political and economic ideas can be tested and successful ones eventually win through contributing to the durability of American power. Town after town in blue California goes bankrupt under the weight of leftist policies, while towns across red America blooms as the shale revolution spreads. So you can guess which idea will eventually win through and be applied all across the land.

    • Joe Phillips

      No Amnesty for the invading horde of uneducated welfare Democrats assures that we become a one party Nation ruled by the democrat party!

      • Jack_Kennedy

        that one party rule will NOT last long………see greece/cyprus………cuz it takes gold to rule and as that one party continues its reign of terror on us, that gold will go awaaaaaay

        • Joe Phillips

          Not really we will just be another Third World Nation Modeled on Mexico. The world is full of Third World Nations and we are headed full speed to join them!

          • heatherGirl

            Once were third world….. the Democrats will go ask the UN for money!

  • Joe Phillips

    California the Golden state, Obama and the Democrats model for American future, is fast becoming the poster child for an bankrupt third world State!

    An unholy alliance of Socialist Democrat politicians, Unions, Left wing loony,s and Illegal Aliens supporters are feasting like hogs at the trough of tax payers paid benefits while taxing & regulating business and the tax paying public into poverty.

    The corruption and pandering of Left Wing Democrat Politicians to their constituency of Unions, Illegal Aliens and open border supporters, are driving business and citizens to other states & countries, while leaving the parasites, welfare leeches and Hollywood perverts in an increasing bankrupt, crime ridden, dysfunctional state!

    For years California has ignored economics 101 and imported Criminals, Uneducated fast breeding Parasites, and poverty from Mexico, which increased Medical, Welfare, Crime, Prison, etc. & adding a estimated 22 billion per year to Calif. State expense to support the invading horde of Illegal Aliens while exporting business and educated tax payers.

    Like all Socialist countries the results have been a astronomical increase in social welfare, schooling, prison cost etc. and a lowing of Living standards, Heath care, Education standards, Tax receipts & finally Bankruptcy.

    The policies of Comrade Obama and Wash. DC Democrats are intent on following Calif. policies and Pro-Illegal Aliens, Pro-Unions and Anti-tax paying citizens and are endorsing the same socialist process of rewarding the Corrupt, Stupid, Foolish, Lazy, Greedy & Criminal while punishing the responsible, honest, law abiding citizens of American.

    Failure to abide by our Constitution against invasion & enforce our Immigration laws and constraints on wages and benefits for public employees will result in turning the Golden State into MexiCalif and the end of the Calif. Dream and the beginning of the MexiCalif. Nightmare!

    Amnesty & Citizenship as a reward for their invasion of the USA, with chain immigration will result in the rest of the USA turned into a Spanish speaking third world cesspool and follow California into a polluted, over populated, Spanish speaking, third world Slum of Crime, Corruption, Poverty, Cruelly & Misery modeled on Mexico!

    This will result in a population depending on Welfare and the Democrat party, thus assuring the lock on power for the Socialist Democrat party of the United States of Mexico!

  • ppie14

    Krugman isn’t an Economist he’s a propagandist and spokesman for Socialism. What happened in Stockton is what eventually always happens to Socialism you run out of other people’s money. It’s what happened in Greece, Cyprus, Cuba and the former Soviet States. Too many takers and not enough makers. It will happen to the rest of the country if Obama and Krugman have their way.

  • moderate Guy

    Now for the really hilarious bit: the largest creditor stiffed by Stockton is, none other than California Public Employees’ Retirement System, the CALPERS system. Basically the dumb sh**t liberal thieves loaned money to one of their own rickety operations.

    • Doug Wenzel

      Those are overdue pension contributions.

    • heatherGirl

      Does not seem so! Seems they will get some special treatment in a modified bankruptcy……. Isn’t this what General Motors got? A modified bankruptcy were no union contracts had to be re-negiated?
      I am guessing the American taxpayer will soon be the main bond holder for Stockton….. just like we were main shareholder for General Motors.

    • SkippingDog

      CalPERS isn’t even on the creditors list and Stockton is still making its payments every month. CalPERS and the retirees won’t lose a dime.

  • scott roark

    these libs are lying in the bed that they’ve made over the decades. how appropriate.

  • Joe Phillips

    Obama will be the most transformation President in American History! He is the one that will turn this Nation Blue and to one party dictatorship!

    Obama and the Democrats agenda is not about good government, not about making this Nation better place for its citizens, not about making this a stronger better Nation, its about turning this Nation into a one party other words a dictatorship and he is executing his agenda with the help of the far left news media nearly flawless!

    Poverty, government dependency and Democrat votes are Obama,s and the Democrats objective!

    Amnesty and chain immigration will increase the number of all three by many, many millions. While costing Tax payer,s trillions and complete the bankrupting of this Nation!

    If reducing Calif. and this Nation to a suburb of Mexico and this Nation to a bankrupt Third World Slum is necessary to accomplish their goal that is a price Obama & the Democrats are more than willing to pay.

    The last piece to achieving their goals of controlling this Nation is nearly in place.

    Amnesty for the 12 to 30 million criminals and uneducated invading Illegal Aliens. That with chain Immigration for the ones still left in Mexico and Latin American and with a Prolific breeding rate will assure all Red States are turned blue and a Democrat majority forever with a Spanish speaking Third World Slum here of Crime, Corruption, Poverty and Misery modeled on Mexico and controlled by the Socialist/Democrat party of Northern Mexico!

    It is all about Power, Control and the Democrat party and how to use lies, false compassion, poverty and government dependency to enslave a free people and a great Nation!

    • heatherGirl

      I think your right. I think he wants America to be just another country on the world stage…… one among equals.
      To do that we need to be taken closer to third world status.

  • Kevin Thompson

    “It’s hard to see how the state could be experiencing a “comeback” when multiple cities are declaring bankruptcy…” Not once you realize that in the liberal world up is down, left is right, black is white, and so forth. Oh, and I forgot the unicorns. Must have unicorns!

  • manute777

    “. . . retirees will likely see sizable cuts to their pensions.”

    I doubt that, at least after Stockton comes out of bankruptcy, given California law on pensions.

    The only real way to curb pension escalation for current employees is to freeze salaries (since pensions are calculated in part by final years of salary – Stop the salary increases, limit the pension outlays).

    • Douglas6

      It is unclear, to say the least, whether federal bankruptcy law allows the court to impose cuts on CalPers and the pensions as well as the bondholders, notwithstanding the provisions of California state law. This will take years to resolve, and given the number of pending and coming municipal bankruptcies, might well end up being decided by the US Supreme Court.

      • SkippingDog

        Chapter 9 of the Bankruptcy Code is actually very clear that a workout plan cannot contain any provisions that conflict with state law or regulations. It’s a 10th Amendment issue.

  • heatherGirl

    Chose which bills to pay? Translation, they will make sure they pay off the unions….. they need them to win the next election.
    Then they can work on bankrupting the rest of the state!

  • John Malde

    This all started even before the city elites gave neil diamond $1 million to open the new arena!

  • SkippingDog

    There’s no reason to believe retirees will see any cuts to their pension benefits. Those benefits were not touched at all in previous municipal bankruptcy cases in Orange County and Vallejo, and they weren’t considered as part of the initial petition in this case.

  • SkippingDog

    The list you provided was one of “creditors, labor groups, and interested parties.” CalPERS has never been listed on the creditors list and the judge’s decision highlights the fact that it has not had any impairments directed toward it.

    Context counts.

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