February 28, 2017

B is for Bankruptcy of Stockton, California

ca-small-business-routesIt’s a running joke around these parts (Utah) that a successful business plan for a California company starts with leaving California. The cost of living, rising taxes, and increased government regulation are all combining to make California less attractive, the beaches not withstanding.

Now comes this: Stockton, California, a city of around 300,000, has declared bankruptcy. U.S. Bankruptcy Court Judge Christopher Klein signed off on the bankruptcy petition yesterday.  It’s the largest U.S. city yet to do so.

Faced with finances crippled by the housing crisis and recession, Stockton has already eliminated retiree healthcare benefits and at some point will need to negotiate with California’s pension system, the California Public Employees Retirement System or CALPERs, about how to deal with pension payments to retired city workers.  Not surprisingly, the city’s creditors opposed the bankruptcy.

During his comments, Klein noted that Stockton’s cost cutting had started years ago, and now 77% of the city budget was devoted to diminished police and fire services. (Ironically, last year saw a record number of murders in Stockton…has police protection has been diminished too much?)

Stockton BankruptcyWhich begs the question: if so much of the city’s budget is devoted to such basic services as police and fire, how did Stockton rack up so much debt that it exceed its ability to pay?  Has the tax base in Stockton been hit so hard?

Apparently so. Klein in his findings of facts said that the bankruptcy was precipitated by

over betting on sustained tax revenues from a real estate boom, bankrolled a downtown redevelopment and doled out generous employee benefits on top of a “multi-decade, largely invisible pattern of above-market compensation for public employees.”

The jokes about people and businesses leaving California for better opportunity may be funny, but the results of overspending are not. Let’s hope that Stockton is no more than a cautionary tale, rather than an omen of things to come.

Ironically, Obama cheer leader Paul Krugman’s column in yesterday’s New York Times, mocking conservatives for decrying “liberal big spending and overpaid public employees” as “bringing on collapse” in California, came out just hours before Klein issued his ruling. Apparently, reality failed to read Krugman, and, unfortunately, reality does not negotiate.


Publius Online is participating in the Blogging from A to Z Challenge, a month long quest to post every day. Each day should match a letter of the alphabet. Today is the letter B.

 

About Daniel Burton

Daniel Burton lives in Salt Lake County, Utah, where he practices law by day and everything else by night. You can follow him on his blog PubliusOnline.com where he muses on politics, the law, books and ideas. He is active on social media, Republican politics, and has been named to PoliticIt’s list of the “Top-50 Utah Political Opinion Leaders” on Twitter. You can reach him directly at dan.burton@gmail.com

  • http://discconnected.blogspot.com/ DiscConnected

    Sadly, I think this will be a wave of insolvencies as other municipalities come to grips with the demographic realities that they did not seem to want to plan for.

    Rough times ahead for the USA….

    Larry

    • Daniel B.

      You may be right, Larry, though I hope that things will take a turn for the better.

  • http://lostinsidethecovers.wordpress.com ocdreader

    My cousin has her own business here in CA and she is constantly talking about how unfriendly this state is for small biz and how they are never going to get ahead until they leave. sigh. dang state.

    • Daniel B.

      Your cousin should come to Utah! We love it here and economic growth is above the national average and unemployment far below it.

      • http://lostinsidethecovers.wordpress.com ocdreader

        honestly, that is where they want to move!

        • Daniel B.

          Well, I recommend it. It’s a great place to be.

  • http://www.margokelly.blogspot.com Margo Kelly

    I’m visiting from the A to Z Challenge. Nice to meet you!

    • Daniel B.

      Thanks for coming by, Margo.

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