Last summer, it seemed as though there was a new trend emerging, one that included several California cities, including San Bernadino and Mammoth Lakes. Stockton was another one of those cities that made the announcement this past June that it would also be seeking bankruptcy protection via a Chapter 9 filing.
Many recall the series of announcements from these city leaders. In fact, in San Bernadino, its announcement was followed with another one, this time saying there were criminal investigations that were occurring simultaneously. The only thing we knew for sure then was what was reported in a presser from the sheriff in that county,
Several months ago at the request of San Bernadino city officials, the San Bernadino County Sheriff’s Department, along with the San Bernadino Police Department and the district attorney’s office began an investigation related to allegations of possible criminal activity within departments of the San Bernadino city government,
the statement said.
And now, Stockton, a city of around 30,000, has its own financial controversies. Part of the problem for many last year when the announcement was made could be summed up in just a few words: $46 million glass hockey arena. Taxpayers footed the bill in 2005 and again, it carried the bill for a new Oakland A’s stadium, much to their chagrin. That was followed by impressive salaries and perks for city leaders which were justified by insisting that’s what would lure the “brightest minds” to the area, which, many reasoned would somehow improve the quality of life for the city’s residents. And, like all good things – and certainly good things that make little financial sense – it all came crashing down. This week, the final chapter begins as the city goes into federal court proceedings. And make no mistake – folks are angry.
None of the residents want the city they were always so proud of to be linked to greed and excess. They want to be known as home of the largest fresh water estuary in North America. They want to be known as a community that has pride in all that it does and they want to be known as a city where residents are ethical and level-headed.
Soaring Real Estate
Between 2000 and 2005, the city grew 20 percent and as a result, real estate soared. And the recession hit. Home prices crashed and lost a devastating 70% in value. It was heartbreaking for many of those residents and it seemed in one fell swoop – and a greedy one at that – everything they’d worked for was simply gone. Within twenty four months, Stockton had accumulated close to $1 billion in debt and the vast majority was due to its civic improvements with the rest being money owed to pay pension contributions and to cover one of the most generous health care benefits in the state – coverage for life for all retirees plus a dependent no matter how long they had worked for the city. Of course it was bound to fail; it had no degree of realistic hope. The creditors are those that insured the bonds that funded all of these excessive expenditures.
Many are wondering why those bonds were issued at all; after all, it doesn’t take a financial genius to understand the pure nonsense factor. Jeffrey Michael, director of Business Forecasting at University of the Pacific agrees,
It was like refinancing your house and dumping the proceeds into the Wall Street market and hoping your earnings go up faster than the interest rate on your loan,
Trying to Keep Up
Within a year, the city found itself cutting its budget in dramatic ways just to stay a step ahead. It was the citizens who felt the burn. The city’s police department took a 25% hit in its personnel and the fire department saw 30% of its dedicated professionals leave with pink slips. The various city departments were cut by 40% and the city’s general fund was cut by close to $100 million. The banks found themselves cornered and even Wells Fargo was against the wall and had no choice but to repossess three parking garages because the city couldn’t pay the $32 million in bonds. Others seized a $40 million high rise building that was at one time destined to become City Hall. Why didn’t someone tell those city leaders that in a city of 30,000, a new high rise is the last thing the city government needs?
Murders and Other Sins
Soon, the city began racking up murders. In 2011 and 2012, it broke records and this week, it had three murders. It was also ranked by the FBI as the tenth most dangerous city in the United States. Again – this is a city that’s small in comparison to others. A near-18% unemployment rate doesn’t help, either. Its citizens are more likely to be illiterate than any other city in the country.
Credit Cards and Bankruptcies
None of this bodes well for those looking to find a way to rebuild the once thriving community. Bankruptcies and credit card debt are causing resident to lose sleep and folks won’t soon forget the betrayal they feel their city leaders heaped onto their shoulders. Many found themselves with few alternatives and in order to keep their jobs, they had to agree to wage and benefits cuts, which, of course, meant they were going to struggle to meet their own financial obligations. For those who retired from the city, they too are feeling the heat. They’ve been asked to shoulder more of their health care costs – to the tune of $540 million.
And the city’s creditors know all too well the negotiations. Many have been unable to find a happy medium, but they want the city to find another solution besides bankruptcy. Assured Guaranty said Stockton offered 17 cents on the dollar for bonds that had 50 year lifespans. They say it’s not acceptable and that the city should be raising taxes. They cite $7 million unclaimed parking ticket tab the city could collect on. Our guess is its lean law enforcement staff is trying to solve the growing number of murders.
No one knows what the ultimate solution will look like, but for the sake of the residents who have called Stockton home, they know they deserve better for themselves and future generations.
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