Business

Calif. Cities Are Going Broke & It Could Become a National Trend: Here’s What you Need to Know

Stockton, Calif., filed for Chapter 9 bankruptcy in June 2012, making it the largest U.S. municipality in history to do so. What’s worse is the fact that this isn’t even a first for the Golden State. As noted before on TheBlaze, California has some serious financial problems.

Are other states in danger of having their own Californian Crash? Writers at Reason seem to think so.

“Stockton, like many U.S. city governments, spent lavishly throughout the 1990s when the real estate bubble filled public coffers with property tax revenue,” Zach Weissmueller writes.

And by “spent lavishly,” he means “spent lavishly.”

“Public officials approved big public works projects such as a new arena, a waterfront park and a grand, new city hall building that the city government never had the money to occupy,” he writes.

But perhaps the city’s greatest problem is the $800 million in unfunded liabilities for pensions and other post-employment benefits for its public sector employees.

“We‘re saddled with this debt that we don’t have the revenues any more to service,” says Stockton’s Vice Mayor Kathy Miller.

But why does Reason think California’s problems will be common throughout the U.S.?

“There’s a real kind of moral hazard, whereby [city officials] have incentives to offer goodies to people, knowing that they won’t have to bear the costs of those decisions,” says Reason Foundation senior analyst Adam Summers.

Stockton is paying the price for its shortsightedness. Funds that were originally intended for necessary public services were frittered away on lavish buildings and now Stockton has been forced to reduce the size of its police force which, unsurprisingly, has led to a rise in the murder.

“Stockton officials hope bankruptcy proceedings will allow the city to opt out of some of its more stifling contracts and to avoid repaying all of the bondholders while maintaining some money in the general fund to keep its most basic city services,” Weissmueller writes.

Granted, that is a good place for Stockton to start but the city must realize it has a lot of work ahead of it.

“This much is certain: With cities across the country locked into expensive long-term contracts, Stockton’s title as the largest U.S. city ever to go bankrupt might be short-lived,” Weissmueller adds.

Indeed, unless cities get their public spending and public employee contracts under control, what happened in Stockton may become the norm on a national level.

Follow Becket Adams (@BecketAdams) on Twitter

Comments (78)

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  • kadydid
    Posted on August 8, 2012 at 2:18pm

    I want to leave California. The environmentalists cut off water to the farmers that killed agriculture and jobs in the central valley. The union and government workers prop up politicians who give them what they want. The people of California are left with nothing.

    Report Post »  
    • the_system_disconnect
      Posted on August 8, 2012 at 2:31pm

      Keep up the good work reporting on this stuff, Blaze :)

      The hate filled liberal tyrants will be their own undoing.

      Report Post » the_system_disconnect  
    • dublinthewagons
      Posted on August 8, 2012 at 4:17pm

      Texas is the place to be. We are looking for the covered wagons any day now. It was good enough for Davy Crockett. All we need is to post signs “liberals not welcome”

      Report Post »  
    • Detroit paperboy
      Posted on August 8, 2012 at 5:24pm

      Yeah, if they could only print money like their lefty big brothers in the CRIMINAL FEDERAL GOVERNMENT…….they would, trust me…..WELCOME TO DETROIT…..

      Report Post »  
    • thegreatcarnac
      Posted on August 8, 2012 at 6:01pm

      NO NO. Texas does not want Californians at all. Stay where you are you liberal twits. You ruined your state and we don’t want you to ruin ours. Californians are not normal. They are dimwitted libs.

      Report Post »  
    • jacasa
      Posted on August 8, 2012 at 7:10pm

      I want to leave CA too. I am an older woman now and live alone. Where on earth would I go?

      Report Post »  
    • hempstead1944
      Posted on August 9, 2012 at 1:47pm

      The people of California voted for these folks…….you get what you pay for and you get what you vote for…..enough said?

      Report Post »  
  • lukerw
    Posted on August 8, 2012 at 2:15pm

    I am Not my Brother’s Keeper! I am concerned for him and care for him… but he can Fluke up his Life any way that he wants!

    Report Post » lukerw  
  • Mikev5
    Posted on August 8, 2012 at 2:00pm

    I live in California till 2006 and we all saw this time coming the crazy pay and benefits packages given to Government workers. It was out of control we bitched we called them out and they just ignored us it was on all the local TV channels but they just ignored our cries of too much pay for the jobs and kept upping there pay and benefits every year like clockwork and I’m talking big increases . They just ignored all our anger and pleas to stop the insanity they had control and we were just angry little people.

    California was like a crazy out of control monster with the Unions in control of everything

    Report Post » Mikev5  
    • Wartface
      Posted on August 8, 2012 at 2:57pm

      Spending others people’s money to secure your power and retirement benefits can ruin a great country. Margret Thacher said it best. Socialism is great right up to the point you run out of other people’s money to give away.

      Socialism leads to Fascism and that leads to Communism. Communism leads to mass murder and striping people of their dignity. It always ends very, very ugly.

      Report Post »  
  • Ogilthorpe
    Posted on August 8, 2012 at 1:56pm

    All the libs can come up with is “tax the rich”, never “stop the spending”. Do the math, taxing the crap out of the rich doesn’t even provide an adequate temporary band aid. They know damn well that the real money is in the middle class.

    First, if you convince the electorate that the countrys’ problems are all due to the rich and then you soak them, you can be looked upon as “caring” for the lower and middle class. Now that you have made yourself a hero in the eyes of the dependent masses, you then pitch your empassioned plea for help to improve things by taxing and curtailing freedom for these sheep in exchange for some more “freebees” from the government, thus cementing your power for generations.

    The plan is bigger than any myriad of single issues that we are spoon fed by the media. If we could stop focusing our attention and resources on these little skirmishes and attack head-on the bigger issue of socialism spreading like cancer in our country, we could win this war.

    These cities going bankrupt is largely due to the local, stupid politicians trying to make some local history with their name on it, so that they can feel important. The bigger picture is a concerted effort by a dedicated team of socialists hell bent on creating their utopian experiment at the expense of all of us. We need to fight that fight!

    Report Post »  
  • OniKaze
    Posted on August 8, 2012 at 1:54pm

    I am getting to the point where I think it may be for the best to just let it all burn…

    I mean, once every city in the U.S.A. is broke, MAYBE THEN people will learn that you can’t spend more than you make…. Its a shame that our country has gone down the tubes (and don’t mistake the reality, we are not falling from greatness, WE HAVE ALREADY FALLEN..) but even with all of the crap that has happened in the U.S. we (as a nation) have still not seemed to have learned our lesson…

    AMERICA is dead…. It has begun to burn… Only through starting over with original ideals of the founders can we raise this Phoenix from the ashes of our own destruction, and back to what this country once was….

    Politics IS NOT about gay marriage, or Abortion, or Gun Control… Its about being responsible with the funds of the country, to ensure that the country can continue on a path of growth and prosperity… Everything else is just a needless distraction…

    Report Post » OniKaze  
    • hatchetjob
      Posted on August 8, 2012 at 2:09pm

      I agree ONIKAZE, and I think the government officials are grabbing all they can greedily before it DOES burn.

      Report Post » hatchetjob  
    • TheBurningTruth
      Posted on August 8, 2012 at 3:49pm

      I’ve felt that way for quite awhile now. Between my wife and I (she had her own business which she actually DID build!) we’ve let out income drop by over 95% since it’s peak because of the cruel progressive taxation and wasteful spending on political games. Since we’re conservative, we saved much of our income over the years so we can sit back and watch the flames.

      The only problem with this scenario is if one lives close to one of those flash-point cities where the violence will begin. Once the “gimme-groups” that have extorted us for generations (pay us welfare or we’ll riot) stop getting their freebies, they WILL start to riot and after they’ve burned out their free hovels, they’ll be heading into the surrounding communities.

      And that’s why the Progressive Left is so insistent on gun control.

      Report Post » TheBurningTruth  
    • thegreatcarnac
      Posted on August 8, 2012 at 6:03pm

      Obama has used Alinsky methods to bring down America. He has spent us into oblivion. He has wasted our money. He is a traitor.

      Report Post »  
  • bdandsl
    Posted on August 8, 2012 at 1:47pm

    I live in CA and in my county, they have forced furloughs on employees – which causes a loss of 24 days income, that‘s losing over a month’s income -, cut backs or raised prices on services, laid off workers and yet, they are still spending on frivilous things (remodeling building, building new gov’t buildings, adding new social services give-aways, putting in a wind power project that will provide 5,000 residents with electricty in a town of about 30,000 – about half of that illegal aliens – at a cost of $22M) and NEVER, EVER cut the welfare roles or benefits! If fact, as all other depts take a buget cut, social services gets an increase!

    I wish there was a way to boycott paying taxes until they learn to be good stewards with our money!!! Hit them where it hurts!

    Report Post » bdandsl  
    • Mikev5
      Posted on August 8, 2012 at 2:03pm

      Typical government crazy public works green garbage and social crap.

      Report Post » Mikev5  
    • Mikev5
      Posted on August 8, 2012 at 2:26pm

      bdandsl

      That’s a great Idea if we all refuse to pay any tax’s within 3 months the coffers will be dry and they will need to listen to us we are the ones in power not them they need to learn that lesson we the people are the one paying them to do a job not the other way were they are in control of our lives and we must pay them the way they look at it now. They think we are subjects to be kept in place and do as they want

      Report Post » Mikev5  
  • davetrav
    Posted on August 8, 2012 at 1:43pm

    Poor California—-Isn’t that where PELOSI is from? WHY isn’t she helping her state, or is that be on her.
    I thought super NANCY can walk on water like Obama. VAN JONES says she is the greatest thing since ice cream. Nancy need to go back to OZ—they didn’t put enough water on her yet.

    Report Post »  
  • term limits for congress
    Posted on August 8, 2012 at 1:39pm

    Isn’t the answer obvious, California? More government spending and more taxes! Duh. (and, the occasional bailout)

    Report Post »  
  • 762x51
    Posted on August 8, 2012 at 1:36pm

    Failure of liberalism on parade.

    Report Post »  
    • TheEDGE
      Posted on August 8, 2012 at 1:49pm

      Californians will not see it as a failure unless the rest of the country refuses to bail them out.

      Report Post » TheEDGE  
    • Mikev5
      Posted on August 8, 2012 at 2:47pm

      I don’t think you fully understand the state of CA is run by the Unions and the Unions only the Governor is a figurehead with little power to do anything. We the people have been trying to change things but the unions are too powerful to get any changes done. If you try you get burned by the unions the governor Arnold tried to get changes done but then the unions came down on him like a ton of bricks so he had to toe the line or have a miserable term in office he became the unions butt buddy/puppet just like Obummer is a puppet.

      Report Post » Mikev5  
  • BloodSweatandTears
    Posted on August 8, 2012 at 1:32pm

    My argument of “Mathematically Challenged” government officials, politicians, -the holders of the publics trust, seems to answer a lot of the problems we will share- all too soon. Wait until this is the federal government talking….

    Report Post »  
  • bdandsl
    Posted on August 8, 2012 at 1:31pm

    There is a reason the old ways of doing business worked. Being frugal is always the best option. Becoming a spenfthrift is a sure-fire way to go broke, be it in your personal finances, business or gov’t. Guess, the ‘new math’ they have been using doesn’t work!

    Report Post » bdandsl  
  • Mikev5
    Posted on August 8, 2012 at 1:27pm

    Hit that one on the money all these city’s did the same thing used money unwise and spent on lavish luxuries and most were never needed just ego trips or to make them look good so they could get re-elected. They squandered the cash as fast as it came in that’s why the coffers went dry so fast they were spending at an alarming rate and when they finally noticed the cash drying up it was too late to stop the spending. Who is paying for their mistakes we the people that’s who we are stuck with the bills and the roads and other need repairs that they ignored so they could build there lavish projects.

    Report Post » Mikev5  
  • BloodSweatandTears
    Posted on August 8, 2012 at 1:16pm

    Everything is a Ponzi scheme….

    Report Post »  
    • girlnurse
      Posted on August 8, 2012 at 1:27pm

      Yes! Thats what I mean…until the sheeple see the crash and come to the reality of what is happening they will stay in denial and keep on delaying the inevitable by bankruptcies and bonds and government fees, fines, and regulations. Government needs to shrink by 75% if we are going to survive. Or to make life worth living again anyway.
      And does anybody care about the poor older folks who won’t be getting the pensions they worked years for??? Whether they deserved the amount or not…it was a contract they worked their entire life to get and there was a day when you could trust the government to do the right thing…those days are over! Its all futile! “Trust God and follow His commandments for this is the whole duty of man”

      I mean Jerry Brown is insisting on the bullet train to nowhere…ummmm Can we afford it? No. Do we “need” it? NO They will keep spending givin the option until we are Detroit and then they will be forced to wake up and see what they have done.

      Report Post » girlnurse  
  • girlnurse
    Posted on August 8, 2012 at 1:11pm

    I wish it would just crash already!

    Report Post » girlnurse  
    • BloodSweatandTears
      Posted on August 8, 2012 at 1:17pm

      May I suggest you think that through…

      Report Post »  
    • Rothbardian_in_the_Cleve
      Posted on August 8, 2012 at 1:34pm

      @Blood,

      It is going to crash. It is mathematically certain. The unfunded liabilities combined with national debt combined with state and local debt is unservicable. Some models suggest that a 3.5 on the 10 year is enough to tip the balance. Could be. That’s why the fed is keeping short term rates near zero. They can do this because there is still the perception of “safety” in US paper as well as the greenback being the reserve currency and hence we can export inflation. (makes us popular globally). Anyway, total debt is somewhere around 5 times the GDP of planet earth. Add to that the amount of derivatives CDS/CDO’s that are in play that can tip one way or another. That is around 900Trillion dollars…and increasing. That is 13 times planet earth GDP. This is obviously more money than all of the cash, gold, silver, currency in existence.

      The longer we delay this, the bigger the avalanche is when it finally goes. There is no benefit in delay when you cannot fix it. It has to come down and sooner actually is better than later.

      Report Post » Rothbardian_in_the_Cleve  
    • hatchetjob
      Posted on August 8, 2012 at 2:02pm

      I agree with you GIRLNURSE and ROTHBARDIAN. And I too wish a crash would happen already.

      Report Post » hatchetjob  
    • Mikev5
      Posted on August 8, 2012 at 2:09pm

      Actually I agree that is the only way change will happen when it crashes then we will have the power to kick out the blood sucking Unions they are so entrenched that’s the only way we can get them out.

      Report Post » Mikev5  
    • girlnurse
      Posted on August 8, 2012 at 2:19pm

      Right! The greed of the unions, corporations, and big government will cause their own demise and only then will we be able to rebuild properly!

      Report Post » girlnurse  
    • Mikev5
      Posted on August 8, 2012 at 2:35pm

      What I can’t believe is Brown is in charge now that guy is part of the reason CA is a mess and he got elected to run the state again I’m old enough to remember that Idiot and his changes to California.

      Report Post » Mikev5  
  • blackyb
    Posted on August 8, 2012 at 1:10pm

    These people have been getting enormous taxes, more than anyone just about in the country. They sold houses for 10 times their value and put people out of business trying to parse land out to the rich who were already raiding the coffers. They have stole the place out of existence hiring thieves and their families to run that place out there. As long as they were “good democrats” they could about write their own ticket. As far as I am concerned the good people can move out and the whole place can go into the ocean for a good cleansing. There is no one left who can salvage this junked state.

    Report Post » blackyb  
    • Altair
      Posted on August 8, 2012 at 1:22pm

      Agree… the state of mind out there is unbelievable.

      Report Post »  
    • bdandsl
      Posted on August 8, 2012 at 1:34pm

      As a conservitive here in CA, I agree with you.

      Report Post » bdandsl  
  • JUSTANOTHEROPINION
    Posted on August 8, 2012 at 1:07pm

    The country is going to hell in a stupid bag. Public sector checks and balances have been non existent for years. All this give them this help that mentality is ok in theory, but, in financial reality can not be done. Government does not fall under the catagory of Charitable Organizations and should not be run as such.

    Report Post »  
  • KingCanon
    Posted on August 8, 2012 at 1:07pm

    Good gosh! There’s more money in California than a dozen Saudi sheiks could
    spend in a lifetime. Only greed keeps this hypocrisy in the headlines. ONLY greed!

    Report Post » KingCanon  
    • Rothbardian_in_the_Cleve
      Posted on August 8, 2012 at 1:37pm

      Riiiiiggghhht. Since debt is now money then you are correct I suppose.

      Now all we need is people to go door to door and round it all up right?

      Report Post » Rothbardian_in_the_Cleve  
  • blackyb
    Posted on August 8, 2012 at 1:06pm

    Congradulations: You have won a ticket into poordum. Now you cannot have what blongs to others to make up your dumbazzedness. Take your city and see what stupid and careless spending gets you and giving it out to those demanding city leeches who only cater to their wants. You have played games and “fiddled while Rome burned.” So don’t whine to everyone else when you lose it all. You were warned of this many years ago.

    Report Post » blackyb  
    • jackact
      Posted on August 8, 2012 at 1:14pm

      NY State is next.
      Andrew Cuomo rode into town on his white horse and immediately increased entitlement spending and is now salivating over whatever corrupting funds Fedzilla is willing to put into his pocket.
      Jerry Brown/Andrew Cuomo, same ill, same ideogy, same effect.

      Report Post »  
    • hatchetjob
      Posted on August 8, 2012 at 2:06pm

      Sure glad I don’t live in CA, that place can rot with all the illegals.

      Report Post » hatchetjob  
  • KeithOlberdink
    Posted on August 8, 2012 at 1:04pm

    ******** in charge.

    Report Post » KeithOlberdink  
    • KeithOlberdink
      Posted on August 8, 2012 at 1:10pm

      Really??? Lib tard$ is banned on this board? Wow…1984 has come to the blaze

      Report Post » KeithOlberdink  
    • Darmok and Jalad at Tanagra
      Posted on August 8, 2012 at 1:20pm

      They also don’t like Kracker, Re Tard, Hoo ker. Some you won’t be able to say booger.

      Report Post » Darmok and Jalad at Tanagra  
    • RJJinGadsden
      Posted on August 8, 2012 at 1:46pm

      KEITHOLBERDINK, You might still be able to get away with spelling it with a “U”. I’ll give it a try, LIBTURD, rings more true anyway.

      Report Post » RJJinGadsden  
    • hatchetjob
      Posted on August 8, 2012 at 2:11pm

      Lol!!!

      Report Post » hatchetjob  
  • hi
    Posted on August 8, 2012 at 1:02pm

    Who thought up government t pensions anyway? It is not logical whatsoever to pay someone. NoT to work. Our school superintendent makes &250,000/year and he is retired!! also it takes 20 worki g firemen to fund the pension of just one! Just think the the 20 working retire and that is what is happening.

    Report Post » hi  
    • blackyb
      Posted on August 8, 2012 at 1:11pm

      That should be cut to one-third of what it is.

      Report Post » blackyb  
  • blackyb
    Posted on August 8, 2012 at 1:01pm

    Most of the get drunk or doped up and think it is OK to indulge in all the sins of life and spend money for they can get more to build play arenas and things they think are meaningful. These people are voted in because? Color? sexual leanings? catering to what cause? These people are idiots and should not get the surpluses of other states to fund their disasters.

    Report Post » blackyb  
  • Snowleopard {gallery of cat folks}
    Posted on August 8, 2012 at 1:00pm

    The counties will go down one by one, demanding the states bail them out or they will turn to Obama who will gladly do so in return for their complete surrendering of control into the hands of the admin.

    Report Post » Snowleopard {gallery of cat folks}  
  • RJJinGadsden
    Posted on August 8, 2012 at 1:00pm

    I’ve said it before and will say it again. These California cities that could not give away money fast enough will start looking like huge falling domino displays. Yet, these cities and the state find even more ways to piss their money away.

    Report Post » RJJinGadsden  
  • Rothbardian_in_the_Cleve
    Posted on August 8, 2012 at 1:00pm

    Nah, there will be another bailout. The Fed will guarantee those bonds with a money they conjure out of thin air off a balance sheet that we can’t see. Creating an asset class that will bloat passing risks on to the next bailout bubble and it will get bigger and bigger and bigger. Until one day, when the dollar is no longer the reserve currency for commodity trades because other countries are sick of us exporting inflation (zero interest rates and printing money) and then each dollar we print has a corresponding price tradeoff. At that point, soveriegn debt is garbage and the whole thing comes down. Is that next year? I it in 5 years? 10? Who knows… but it’s coming.

    Report Post » Rothbardian_in_the_Cleve  
    • Altair
      Posted on August 8, 2012 at 1:27pm

      Exactly right, especially about us losing world reserve currency status. $12 (or higher) gasoline, coming up.

      Of course, if you’ve bought enough gold/silver at current or previous prices, the equivalent will be back to $3 gasoline.

      Report Post »  
  • neiman1
    Posted on August 8, 2012 at 12:53pm

    Oakland hasn’t got a chance. They just issued bonds to pay off bonds that were sold years ago to put money in their retirement plan???

    The hadn‘t put enough in even by California’s poor standards to fund retirements. So they borrowed. Now the original borrowing is due after paying interest. Now they issue more bonds to pay off the old ones but still haven’t put more into the retirements. Now the fund is still underfunded and the city owes for all the borrowing.

    This Ponzi scheme is about to crash. CalPERS still pretends it will earn 7.25% on all of their holdings year after year. No one except the CalPERS board buys into this. The problem is if they lower the ‘expected’ return then all the cities and counties owe even more to the fund. There is no answer except bankruptcy and probably for the entire state.

    Report Post »  
    • Altair
      Posted on August 8, 2012 at 1:29pm

      There’s an answer, alright. Tax Texas wage earners enough to bail the profligate children of California out.

      Report Post »  
    • dublinthewagons
      Posted on August 8, 2012 at 4:43pm

      Tax TEXAS where they gave up the gold standard and gone onto the new lead standard.

      Report Post »  
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