Notes from the bankruptcy of Stockton, CA

The LA Times's Diana Marcum tells the story of the bankruptcy of Stockton, California, a city of about 300,000 people, which has just filed for bankruptcy. The city -- and its developers -- borrowed heavily in the past decade to build a series of follies: a luxury hotel, a marina, a promenade, in a bid to lure people down from the Bay Area. Stockton is a boom-and-bust poster-child, and has just gone through the new AB 506 arbitration procedures set out for municipal defaults in California law, a drawn-out "death of a thousand meetings," and is still headed into bankruptcy.

Although a city of almost 300,000, Stockton is a place where many families have known one another for generations. The most impassioned speakers argued on behalf of others, with the main rallying cry a plea to keep health insurance for retirees with illnesses. A high school student spoke of his aunt, a retired city worker with cancer, and a retired fire chief spoke of his former secretary who cares for her ill husband.

"People look at me and say, 'Well he can afford his own insurance,' and I can," said Gary Gillis, the retired chief. "But how about the ones who mowed the lawns, went in the sewers, typed my letters? We have to protect the most vulnerable among us."

Experts say there are no clear answers to what comes next for Stockton or how its fall will affect the rest of the state. Other cities hit hard by the housing bust and state budget crisis are negotiating with employee unions for concessions and are watching to see if municipal bankruptcy proves medicine or poison.

Stockton bankruptcy will make history; residents reeling (via Naked Capitalism)

(Image: Stockton, California, a Creative Commons Attribution (2.0) image from inman_news's photostream)


  1. I don’t think that the debt on the “series of follies” (hotel, marina and promenade) is the problem.  Do you?

    1. nah, not that.  It’s the generous pensions to former city employees, those bastards getting a free ride.  yeah, that’s it.  THEM.

      1. Actually, it’s both.

        Stockton, like many other cities, spent like mad on bullshit projects during the housing boom, deliberately deluding itself that it would never end.

        And there is nothing wrong with providing good pensions to workers, providing that they are actuarily sound.  What a city can’t do is project pension finances based on fantasy rates of return in the portfolio – 8,9,10 percent in perpetuity, numbers that never occur in the real world except for early members of a Madoff type scheme.

        1. Pretty much spot-on. While they were green-lighting all these vanity projects, they were also giving themselves insanely generous pensions and payouts that did a lot to steer the town towards this bankruptcy. And it’s extremely difficult to free the town from those pension obligations once they are agreed upon. 

  2. No housing bust or state budget crisis caused this. This is mismanagement of the city’s budget for decades finally coming to a head.  Ahhh, gotta love the old hometown.  Some things never change.

  3. Of course the development companies walked away with millions, and now the working people and the unions are being asked to pay the price.

  4. This did not have to happen, it is ridiculous-unless I have made mathematical error, took this ‘error’ online to find others speaking out about it as well.
    So tell me, is there not a surplus of $700 billion in Ca coffers? Anther says $600 billion and is a activist trying to bring this to peoples attention. Or are we all missing something as I also noticed old Alex Jones report and well, nuff said, this did tug my skeptic nerve.

    CAFR’s is what I found in a nice neat little bundle, as opposed to my scrawl of a decade long search of “Where Does All The Money Go”-one of many links

    1. But CA has the eighth largest economy in the WORLD, or almost $2 trillion,  So 700 billion  isn’t that much. 

      Finally, this comment is not directed at you personally, people must stop negative talk towards any entity, whether it be little Joey with his $70 lawn-mowing savings account or California for being smart enough to save. Just because it’s in savings doesn’t mean anyone has the right to tell them how to spend it. 

      Our economy is just that; major corps don’t want any American to have a savings account. They want every cent in circulation. 

      If people really wanted to hold a non violent subversive revolt, simply open and fund, even 1-5% of your paycheck, into a savings account.  It is not our responsibility to constantly consume to keep this corporate economy going!

      1. I agree that it isn’t the consumers job to fund the corporate economy so to speak, but consumers and producers are interlinked.  When times are good, everything is good.  When times get rough consumers batten down the hatches and go without.  That causes profits to fall and producers to typically cut back as well.  Less jobs, more belt tightening, and the cycle continues.

        I think part of the problem comes from the fact we (Americans) have so many choices of things now compared to 50 or 60 years ago.  I mean you don’t have to own a cell phone, or a bunch of other things in your house, but our society is pretty much at the point where cell phones, computers, TVs are staple items now.

        You can’t really spend your way out of a recession, but logically savings are for when times get rough.  If everyone and all companies had enough to weather a year or so downturn perhaps things wouldn’t have fallen this far.  (And be willing to use those saving.)

        1. I agree. But I think product quality, such as disposable solar lighting sold at IKEA is disgusting. I inherited a toaster from my grandparents, it’s over 4o years old and is in perfect working order. 

          There was an article a little while ago, maybe here on BB stating Americans or the Guinea pigs for such things as cell phones; items that no savvy citizen in Europe would buy, simply because the company, while hawking it’s 2012 version, is already advertising their “New and Improved” 2013 version. 

          I have a nephew who has  two file boxes full of cellphones and cellphone accessories, he always has to have the newest model.

          1.  You lucky bastard. I scour the Earth looking for a toaster of that vintage and you just get one. I have yet to meet a toaster younger than 30 than can make – you know – TOAST. It is getting so bad out there that some restaurants can’t even make good toast anymore. I don’t want the bread equivalent of jerky, I just want some damn TOAST!

            Sorry, I have been waiting for years to get that off of my chest.

  5. State and local governments continue to fleece us. Yet, we applaud when they are allotted new powers, such as the ability to tax those who do not purchase healthcare. How can so many miss the connection? The more power we give government, the more we are screwed.

    1. We have lower tax rates now than in a generation. It’s unsustainable. And if you think it’s the government that’s fleecing us, you are not paying attention. Corporations are people, my friend.

    2. Corporations are running the government, don’t look behind the revolving door.
      “Hey Joe, why don’t you screw over the taxpayers while you’re in office, and I’ll give you a nice cushy job when you retire.”
      At the local, state, and federal level, (some) public servants are doing things that benefit themselves and the corporations that promise them post-government jobs. Things that severely hurt our nation. Obscene civilian AND military contracts that rip off the taxpayers.

      So stop saying is “just” the government, that is BS. It’s a ballet of corruption. And it’s getting worse. Oh well, at least we have law and order, keeping the individual citizens in line, why isn’t there actual law enforcement for the corporations to keep them in line too? Don’t tell me, the “free” market is naturally honest.

      Actually, enforced sensible regulations are the only things that kept corporations honest.
      Why would anyone in their right mind think that deregulation would lead to more honesty?!?!? Corporations are run by humans trying to make money.

      1. You mean like all the huge healthcare corporations that had a huge influence on the drafting of the “Affordable” Care Act that’ll force everyone in the nation to purchase their product?  

        For a president and a party that hates huge, greedy corporations, they just enacted a piece of legislation that’s sure to enrich a large swath of major healthcare corporations. 

        But you know, it’s not like their lies even have to be that good anymore…

        1. If you think the democratic party doesn’t love itself some big corporate cash, you haven’t been paying very close attention.

        2. I’d much rather pay a higher tax to help someone purchase health insurance that allows someone access to preventative care. 

          The government has the right to force it’s citizens to take care of themselves proactively today instead of the citizen forcing the government to take care of them when they are sick and near death at their own doing. 

        3. For a president and a party that hates huge, greedy corporations, they just enacted a piece of legislation that’s sure to enrich a large swath of major healthcare corporations.

          The original idea was proper socialized medicine; Republican intransigence is what congealed it into this mess.

  6. Stockton, my hometown also, a year ago or so spent millions upgrading the city Police radio system to digital.

    1.  Stockton is my hometown as well.  There was a lot of unnecessary spending in the past few years.

  7. Someone convinced someone else that they could get people to move *TO* Stockton, VOLUNTARILY???  Damn, they must have way better weed up there than in L.A.

  8. with the main rallying cry a plea to keep health insurance for retirees with illnesses.

    I hear a lot from Democratic politicians about how Medicare is an outstanding program that provides wonderful healthcare at a per capita cost which reflects great efficiency.

    In fact, many of them are advocates of “Medicare for all”.

    Given that, why would it be such a cataclysm for these sick retirees to receive their care from Medicare, rather than from one of those profit-driven insurance companies??

  9. Can’t we just cut to the chase and get rid of the money. How many lives have been destroyed because of a stupid piece of green cloth?

  10. “Death by a thousand meetings” – wow, I used to think death by a thousand hooks was bad.   This sounds much worse.

  11. Just as a mark of history, Stockton CA was declared the origin town for the Fantastic Four, in time for their 25th anniversary (issue 296, 1986). The same Stockton, CA? Joe Field ran the publicity campaign and was so successful that Stan Lee hired him as his own PA man.

  12. While there are pension obligations that are large now.  During the booms citys did one of three things
    1.  Paid off debt and stashed money away in reserves
    2.  Increased spending.. and paid off debt
    3.  Increased spending and borrowed a sh$% load of money .

    The pensions also grew larger than needed some citys like stocked skimmed all the excess interest off the pension funds and threw it into the genreal fund.  So pensions that grew at 7 or even 10 percent where skimmed off of to the mandated 3 or 4 percent.  

    Stockton did number 3 and skimmed from the pensions.  Blaming the pensioners for the citys missmanagement should be a crime.  If you work in those citys yes you have a great pension but there is money taken out of your paycheck every month for your share.  Making it much harder to find cash to invest for your retirement.

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