Courtesy of Mish.
The city of Stockton, California, is Bankrupt. It has stopped making bond payments and will become the largest city in the US to seek protection via US bankruptcy law.
The bankruptcy was inevitable.
California law requires blame to be assessed. To be sure there is plenty of blame to go around.
Here are a few paragraphs from the LA Times that explain the setup.
How Stockton found itself so mired in debt can be seen everywhere in the city’s core. There is a sparkling marina, high-rise hotel and promenade financed by credit in the mid-2000s, mere blocks from where mothers won’t let their children play in the yard because of violence.
During the economic boom, this working-class city with pockets of entrenched poverty tried to reinvent itself as a draw to Bay Area refugees and a popular site for conventions. It offered generous city employee pension plans and benefits.
When the bust came, few places fell as hard as Stockton. The city has the second-highest rate of foreclosures in the country and the second-highest rate of violent crime in the state.
The city made $90 million in drastic cuts from the general fund in the last three years, including reducing the Police Department by 25%, the Fire Department by 30%, and cutting pay and benefits to all employees. There is a state investigation into whether Stockton’s financial devastation was entirely due to shortsighted optimism or if there was corruption. The state mediation law requires assigning blame.
Public Union Pensions, a Death Trap for Cities
I added emphasis to the two sentences that explain what really happened and where the blame will be placed. Sure, Stockton politicians made gross errors in its budget. Yet, that is not what did Stockton in.
The thing Stockton could not correct over time is ever-escalating pension promises and public union salaries. Union pensions wrecked Stockton. The only way to escape the death-grip of inane pension promises is bankruptcy.
Things like parks and marinas are one-time foolishness that can be corrected over time.
Ever-escalating public union wages and pension costs cannot be corrected over time (Indeed they are 100% guaranteed to get worse). Prevailing wage laws that force cities to overpay for every city project cannot be undone over time either….
