THE Stockton City Council voted last week to stop paying creditors, putting the municipality on the road to bankruptcy. The story of the Northern California city’s roll toward insolvency should be required reading for all California cities.

During the real-estate boom, the formerly dowdy, working-class inland port became a massive bedroom community for the San Francisco Bay Area. Priced out of single-family homes in the terrifying run-up of house prices in the East Bay, the Peninsula and San Francisco itself, thousands of workers became long-range commuters to jobs in the Silicon Valley and elsewhere by settling down in relatively affordable Stockton.

The city of 292,000 is in this mess because it did what cities up and

down the state have done: It promised benefits it couldn’t afford and borrowed money in anticipation of revenue growth that didn’t materialize.

These weren’t problems that started yesterday; the genesis can be traced to politicians who made financial commitments without thinking about the consequences for future generations – short-term gain while ignoring the long-term pain. As Stockton City Manager Bob Deis noted last month, “it has similarities to a Ponzi scheme.”

The Stockton debacles include a program from the 1990s that promised free retiree health insurance to any city employee who had been on the job a month and to that person’s spouse.

“The problem is nobody asked the question, `How could we fund this?”‘

Deis said. Today, the program has an unfunded liability of about $450 million.

Then, during the past decade, the city issued $319million of debt directly or indirectly supported by the general fund. The city assumed the housing boom would continue, so it borrowed against anticipated future tax revenue increases that never happened.

Instead, Stockton became a foreclosure poster-child with plummeting income and 19 percent unemployment.

Add in unsustainable labor contracts

with hidden costs, the loss of state revenues and – believe it or not – a redevelopment agency that was writing checks without revenue to back them up. It’s little wonder city finances are collapsing.

Deis says the city has squeezed all the concessions it can out of its employees, so now it’s turning to creditors.

Vallejo was the first major municipality in California to seek bankruptcy protection for reasons other than a one-time event, such as an unfavorable legal judgment or investments going bad. Stockton could be next. It probably won’t be the last.

Article source: http://www.presstelegram.com/opinions/ci_20100408