America’s Most Miserable City Emerges from Bankruptcy

Until Detroit, Stockton, Calif. was the biggest municipal bankruptcy in U.S. history. The city, which hopes to emerge from Chapter 9 this spring, has struggled with all sorts of problems in the wake of the subprime crisis—a housing collapse, nosebleed unemployment (it’s still 15.9 % in the city and 13.2 % in the surrounding county), and a mass exodus of firemen, cops and other city service people as the local government struggled with how they could make the budgetary numbers work while still paying gold-plated health care and pension plans to retirees. Stockton did do major cutting in its public sector healthcare benefits, which represented the bulk of its under-funded entitlements. But it’s still left spending 17-18 % of its budget on entitlements like pensions – a number many experts believe is unsustainable. City officials say further cuts just aren’t on the table. “The idea that we’d even look at pension reform meant we started loosing police,” says Elbert H. Holman, Jr., a Stockton council member. “If we’d have eliminated or serious cut pensions, we’d have been devastated as a city.”

As it is, the loss of 400 police officers over four years to nearby cities in better economic shape resulted in a radical increase in crime, and a record number of homicides, 71 in a city of 300,000, in 2012. Reporting in Stockton yesterday, I got an up close and personal look at how desperate things still are thanks to the loss of basic city services. While visiting a tent city of homeless people under Highway 4, one of many in Stockton, my handbag was stolen. Fortunately, two of the tent city residents chased down the perpetrator and got my purse back. “We’re not bad people here,” said Abdul Solo, aged 67, one of those who helped. “We’re just trying to live, stay clean, stay out of trouble.”

That’s a tough job in Stockton, where stories of long-term unemployment and continuing fallout from the housing crisis are still rife (two tent city residents told me they’d lost their homes in the subprime crisis). Nearly every restaurant in the city, mainly fast food joints and small family owned eateries, has a sign like the one at the local McDonalds, which reads, “Service may be refused: this is not a hangout or a shelter.” Indeed, there are few shelters in the city – non profits, rather than the city, support them; paying for care for the homeless is yet another thing that Stockton can’t afford as it tries to craft a budget that will allow it to emerge from bankruptcy without further cuts in retiree benefits. Highway 4’s tent city residents shower and clean their clothes at St. Mary’s, a local Catholic Church. A few blocks away, at the First Presbyterian Church, passers-by are admonished to “give up complaining– and embrace gratitude.”

That’s a message that some city fathers are pushing, too. There are many reasons why Stockton was one of the hardest hit American cities in the Great Recession – a housing bubble, debt spending on white elephant projects (like a downtown arena which is rarely full), fiscal mismanagement, and unrealistic pension return expectations and under-funding during boom times all played a part. The local council understandably wants to move past all that and showcase good news in the city – the Google barge pulled up in Stockton’s port the other day (although nobody seems to know why, exactly); housing prices in nicer areas are starting to go up; crime is down this year from last; the city is convinced that its budgetary math will hold and allow it to emerge from bankruptcy, even as it begins hiring 120 new cops, which was a condition of the recent tax hike that the city was able to pass. But a number of citizens are skeptical. “Stockton’s emergence from bankruptcy will be short-lived under the current exit plan if the pension liability (the city’s largest debt) is not reduced, “ says Dave Renison, president of the San Joaquin Taxpayers Association. “In five short years (2005 to 2010) public pension benefits in California grew at nearly three times that of the private sector.” The fact that statewide pension reform initiatives have so far been torpedoed, “leaves us doing the job for ourselves.”

Mayor Anthony Silva, an energetic and reform minded 39-year-old Republican and former social worker who took office 14 months ago with a mandate to turn the city around, agrees that pensions have been a huge economic drag on the city, but says that “no city can take on pension reform on its own.” Indeed, the fact that 90 % of Californian cities are under the CALPERS system makes it easy for service workers to just leave cities that attempt pension reform and go elsewhere. Mayor Silva is instead focusing his efforts on trying to push economic development in the city, which has the potential to be a bigger logistical hub, as well as trying to find solutions to the increasing bifurcation in a town where preserving the status quo for city workers makes it hard to spend on the most vulnerable. “I’d like to find a way to put some of the homeless to work refurbishing abandoned buildings,” says the mayor, who plans to petition Washington for federal redevelopment money to help Stockton get back on its feet. And despite city council pressure to put the pension issue on the back burner, he says he’d been willing to work with other mayors at a state level to come up with reform ideas. “It’s kind of basic,” says Silva. “You don’t spend what you don’t have.” Tomorrow, I’ll blog about San Jose Mayor Chuck Reed’s ideas about statewide pension reform.