Bankrupt California city provides cautionary tale

[FarCenter]

Stockton, a city of about 292,000, teemed with eager homebuyers in early 2000s. Some 85 miles inland of San Francisco, the agriculture hub and historic gold rush town offered an affordable alternative to the Bay Area.

As the economy boomed, officials also spent big. They doled out generous benefits to city employees and took on debt for civic improvement projects, like a revamp of the waterfront promenade and a new sports arena.

Today, a retired city employee who worked full-time -- even just for a few weeks -- receives free health care for life. The city now plans to phase out those benefits.

Officials counting on never-ending economic growth had no plan for how to fund such lucrative benefits, city spokeswoman Cochran said.

"There was no funding ever put aside for it," she said. "There's no evidence of any analysis that said how are we going to pay for this."

And when the economy collapsed, Stockton couldn't pay for it. Today, unemployment is nearly 20 percent. Foreclosure rates are among the highest in the country.

http://www.france24.com/en/20120707-bankrupt-california-city-provides-cautionary-tale

[enid602]

1. CA

The same trends are being felt in Modesto, Fresno, Sacramento, Merced, San Bernardino, Visalia, Bakersfield, Riverside. There were once two Californias; Northern and Southern. There still are two; coastal and inland. I hope the California State Government can set up some kind of enterprise zones so that firms which continue to leave expensive cities like SF, SJ, LA and SD will be tempted to relocate inland rather than out of state.

[HiPointDem]

2. i think this article is garbage. it blames stockton's problems on overpaid city workers when they

are actually due to bad investments foisted on them by banksters, if i remember correctly.

[FarCenter]

3. The OP mentions both the high compensation and poor investments

They doled out generous benefits to city employees and took on debt for civic improvement projects, like a revamp of the waterfront promenade and a new sports arena.

Pension fund investments are run by CALPERS.

[HiPointDem]

6. that's spending, not investments. i mean investments, like bonds, etc. as i recall, stockton was

Last edited Sun Jul 8, 2012, 02:54 AM - Edit history (3)

conned into taking on some shady investments -- maybe related to mortgage derivatives or something similar.

i'll google around tomorrow & see if i can confirm my memory.

on edit: what happened was calpers invested stockton's pension $$$ in mortgage-related shit.

In 2007, the city borrowed $125 million and put the money into Calpers, the giant California pension fund, betting that investment managers could earn more than the interest Stockton owed on the debt. When the market tanked, Calpers lost 24%-30% of the loan's principal, according to city budget documents.

i also found out that stockton has about half their "pension obligations" in hand (cash or convertible). what i couldn't find was what kind of actuarial window they're basing that on. which i'd like to, because if they're using, e.g., a 75-year window like Social security does, this bankruptcy may be a kind of scam as well.

[dixiegrrrrl]

4. Sounded to me that it focused on unfunded pension plans.

Which has nothing to do with overpaid workers or banksters.
If the city signed employees up for a pension plan but then never funded it,
sounds like the city is to blame, for piss poor planning.

And, from I have read for a long time now, Stockton is not unusual in offering future ( but unfunded) benefits .

[HiPointDem]

7. About 75% of stockton's deficit is due to the stupid way they chose to fund their pensions:

by borrowing money & giving it to calpers to invest (in mortgage-backed securities).

Another California municipality to encounter problems after issuing pension bonds is Stockton. The city issued $125 million in pension bonds in 2007, a third of which promptly disappeared when the market crashed in 2008. But Stockton is still on the hook for the annual interest payments, some $6 million, or about 75% of the city's deficit this year. In late February, the city announced it was moving toward bankruptcy after determining it was unable to make the payments on these and other bonds.

http://articles.latimes.com/2012/mar/26/business/la-fi-pension-bonds-20120327


It ain't the pensions, it's the absolutely stupid, risky "investment" they chose to make in a financial bubble -- in 2007!@!

*I* saw the real estate bubble before 2007, but high-paid financial managers couldn't?

To be perfectly honest, knowing what we know about the level of corruption in the financial industry, I wouldn't be at all surprised if there was a deliberate attempt to foist that toxic shit on public pension funds toward the end of the bubble, to keep it going and put more money into the banksters' pockets before the inevitable crash.

and i wouldn't be a bit surprised if some public pension fund managers were complicit.

because if *i* could see that as a bad investment, a knowlegeable finance person should have bloody well been able to see it too.

[dixiegrrrrl]

9. Excellent point....Thank you for that clarification.

and a thought just struck me..
Soc Sec. treasury trust fund growth has been driven down to zero % by the Bernak, who promises to continue those rates till at least 2014.
Seems like a pretty good attempt to tank the fund.

[NYC_SKP]

5. The source article is misleading. I live in Stockton, I know the Mayor....

Mostly, we're ground central for the national clusterfuck that was unsustainable and unregulated mortgage markets, coupled with all the rest of the bullshit Bush dumped on our nation.

Poor people felt it most, and we have more than our share.

As others have written, it's not just Stockton, it's the entire valley with Sacramento and Modesto (both less than 50 miles away) and Merced (80 miles) all on Forbes list of the worst.

Sacramento, Stockton, Merced, Modesto, Vallejo make Forbes top 20 most miserable cities list

In a recent survey, Forbes looked at the 200 largest metro areas and divisions in the U.S. and ranked the 20 most miserable cities based on 10 factors. Sacramento, Stockton, Merced, Modesto and Vallejo were each ranked in the top 20, with Sacramento deemed the most miserable of the five local areas.

The 10 criteria by which Forbes judged each city were judged are as follows:

Average unemployment rate between 2009 and 2011
Median commute times to work for 2010 based on U.S. Census data
Violent crimes per capita from the FBI's crime report
Success of pro sports teams over the past three seasons
Change in median home price between 2008 and 2011
Foreclosure rates in 2011 from RealtyTrac
Property tax rates based on median real estate taxes paid and median home values in 2010 per the U.S. Census.
Corruption based on convictions of public officials over the past decade by the Public Integrity Section of the U.S. Department of Justice
Income tax rates
Weather in relation to temperature, precipitation and humidity

Following are the 20 most miserable cities in America according to Forbes:

Miami, FL
Detroit, MI
Flint, MI
West Palm Beach, FL
Sacramento, CA
Chicago, IL
Ft. Lauderdale, FL
Toledo, OH
Rockford, IL
Warren, MI
Stockton, CA
Cleveland, OH
Lansing, MI
Akron,OH
Merced, CA
Memphis, TN
Bakersfield, CA
Vallejo, CA
Modesto, CA
Gary, IN


http://www.news10.net/news/local/story.aspx?storyid=176680

[FarCenter]

8. Also there was the UC campus in Merced... but don't worry, there will be a new HS rail boom and bust

IIRC, the Merced campus was proposed by the state to be a 20,000 student operation. So developers built a bunch of houses and other developments in Merced in anticipation. Then the bust occurred and they were stuck with them as prices tanked when UC Merced turned out to have about 1/10 the number of students.

Now the high-speed train to nowhere will be built in the Central Valley.

I used to run projects in various parts of the country. California gets one of the biggest discounts for what will probably happen versus what Californians say will happen. I think it is the influence of the movie business (fantasy) and the defense industry (cost overruns are normal).

[dixiegrrrrl]

10. Ironic that DOJ still has a Public Integrity Section