Back in October I observed in the WSJ that Harrisburg, the insolvent state capital of Pennsylvania, could qualify as the home of any museum of bad governing ideas, given how the city had managed to borrow its way into bankruptcy. Another contender, however, would have to be Stockton, Ca., a city of 300,000 people that announced it will stop making payments on some of its debt perhaps as a prelude to a bankruptcy filing. As the chart below shows, Stockton's projected expenditures far outstrip revenue growth, thanks in large part to unaffordable employee costs.
Stockton officials engaged in a series of questionable practices, including borrowing heavily for new projects they hoped would stimulate economic development like a minor league baseball stadium and city arena. The city also borrowed $124 million in pension obligation bonds, floated to raise money to meet the city's pension costs.
Employee costs are weighing down the city in the wake of a recessionary slump in revenues. Stockton has spent the last two years trying to reduce its budget to avoid insolvency. The city has cut about a quarter of its police, but rich pension and health benefit deals still make it difficult for the city to pay its bills. As the chart below from the city's budget shows, employee costs make up 81 percent of the city's general fund spending. Pension costs alone eat up 22 percent of the budget, while health expenditures consume another 19 percent. On top of that the city has huge unfunded liabilities for promises it made to retirees, including $450 million in liabilities for retiree health care alone, thanks to expensive promises the city made in the 1990s to finance lifetime health benefits for city employees
Meanwhile, things have gotten ugly in Stockton. The police union even purchased a home next to the Stockton city manager that left city officials crying that the union was engaged in intimidation. The union also erected billboards declaring Stockton, "the 2nd Most Dangerous City in California." Stay tuned.
Employee costs are weighing down the city in the wake of a recessionary slump in revenues. Stockton has spent the last two years trying to reduce its budget to avoid insolvency. The city has cut about a quarter of its police, but rich pension and health benefit deals still make it difficult for the city to pay its bills. As the chart below from the city's budget shows, employee costs make up 81 percent of the city's general fund spending. Pension costs alone eat up 22 percent of the budget, while health expenditures consume another 19 percent. On top of that the city has huge unfunded liabilities for promises it made to retirees, including $450 million in liabilities for retiree health care alone, thanks to expensive promises the city made in the 1990s to finance lifetime health benefits for city employees
Meanwhile, things have gotten ugly in Stockton. The police union even purchased a home next to the Stockton city manager that left city officials crying that the union was engaged in intimidation. The union also erected billboards declaring Stockton, "the 2nd Most Dangerous City in California." Stay tuned.
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