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.

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