The state’s 13th largest city, whose theme song is “someplace special,” is the poster child for the collapse of the sub-prime lending market, with one of the nation’s highest foreclosure rates.
“Is bankruptcy the best way out for Stockton?” the Stockton Record asked in an editorial on Monday. “That is the question officials are starting to ask as the city continues to choke on a $30 million deficit caused in large part by plummeting property and sales tax revenues.”
Vallejo is the most recent city to file for bankruptcy, last summer, but other California municipalities are expected to follow suit later this year.
Orange County declared bankruptcy in 1994 after risky investments went sour, a financial debacle I wrote about for the San Francisco Chronicle. Here’s a good book on the topic: “Big Bets Gone Bad.”
This time around, the “b” word risk among municipalities is more widespread — and the result of public policy gone amuck, not high-risk investments.
“The hoped-for benefit of bankruptcy, certainly a goal for Vallejo, was to be unchained from union contracts and pension plans that were eating an ever-increasing amount of the city’s budget,” the Record said. “Stockton faces the same problem, especially with its Police and Fire departments, which account for about 70 percent of the general fund budget.”
So do a lot of other municipalities. Watch out.
(photo from stocktongov.com)