Weekend Economists Kickoff the Season, September 6-8, 2013

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7. What It's Like Living In A Bankrupt City (STOCKTON, CA)

http://www.npr.org/2013/09/06/219313881/what-its-like-living-in-a-bankrupt-city?ft=1&f=1001

...Stockton is the second-most dangerous city in California, to FBI statistics....

"There are still an unacceptable number of hours in a day when police will only respond to crimes in progress," says Bob Deis, the city manager. But problems with crime and city finances aren't as bad as they were. Stockton intends to present a federal judge with its plan to get out of bankruptcy as early as this month. There's no guarantee the city will meet with success. It continues to face legal challenges and one incredibly steep political hurdle: Convincing residents who have not been getting much by way of government services that they should start paying higher taxes. In November, Stockton voters will have to decide whether to raise the sales tax by three-quarters of a penny, from 8.25 to 9 percent, which would raise roughly $30 million a year.

"If we can get the tax measure passed — and that's a big if — Stockton will be well on its way to recovery," says Katherine Miller, a member of the city council. "We won't be rolling in dough or anything, but we'll be through the crisis."

Most of the money would be devoted to hiring cops, but a portion would be used to pay down debt...A nearby industrial park has emptied out, the jobs gone elsewhere. In the park itself, the water in the swimming pool has turned a sludgy shade of pine green. "It's never been changed for, like, three years," Beltran says. There's no question services have suffered as a result of budget cuts. Due to furloughs, city offices are closed every other Friday. Library hours are shorter and recreation programs for kids and seniors alike have been slashed. But if the tax measure fails, Miller warns, cuts will grow more drastic. Parks and libraries would be shut altogether. The fire department budget, already reduced 37 percent, would be cut an additional 14 percent. "In our case, you can't cut any more and be a viable city," says Deis, the city manager....City officials recognize they have a long way to go to win back the trust of the public. Prior generations of leaders banked on growth that never happened, spending big dollars on waterfront and downtown developments and offering unaffordably generous compensation packages to city workers.

"Two years ago, three years ago, the city was not deserving of additional resources," says Deis, the city manager. "Unfortunately, we had to fix 15 to 20 years of mismanagement in a year or two."

Stockton's leaders will have to convince taxpayers that they're now doing the right thing. What's more, they also have to convince a judge that their plan moving forward is the right one. It could be a tough sell. The city has eliminated retirement health benefits for its workers, saving about $1 billion over the next 30 years. But the city still faces pension debt of up to $332 million. It's been years since city workers have seen a raise and their retirement packages have already been cut at least 30 percent with the loss of health benefits, Deis says. Stockton can't attract or retain workers if pensions go, too. (Since 2009, the city has reduced its workforce, outside the public safety functions, by 42 percent.) But asking bondholders and other creditors to take big losses while refusing to trim pensions won't fly, predicts Michael Sweet, a municipal finance lawyer in San Francisco.

"The city has indicated they will not impair the pensions, although the judge has told them he might not be able to approve a plan that doesn't do that," Sweet says. "He said the day of reckoning will come on these issues."

Rising From The Bottom

Despite all this — despite the legal wrangling in bankruptcy court and the fight over taxes and the political food-fighting at City Hall — Stockton is actually doing better than it was not so long ago. Parts of the city have always remained pleasant and prosperous. But even in the troubled parts of town, things aren't slipping out of control, the way they seemed to be doing leading up to the bankruptcy. With California's housing market heating up, the foreclosure rate — a major factor in Stockton's fall — is now the national average. There's more of a visible law enforcement presence, thanks to other governments, if not any more police. A dozen city parks have been adopted by their neighborhoods or nonprofit groups and are getting some much-needed maintenance.

"The city seems to be flourishing, more than before they declared bankruptcy," says Gwen Davis, a Stockton resident looking for work in medical billing. "As a matter of fact, it seems like there's more police."

How To Avoid Landmines

If Stockton can get its plan approved, it will have emerged out of bankruptcy in well under two years — a much faster turnaround than happened in nearby Vallejo, which faced a much smaller set of financial problems when it went bust in 2008. Miller, the city councilwoman, says that people in Detroit and other cities in crisis will be pointing to Stockton and saying, "That's how you do it." She may be right. Stockton's choices were all terrible, but city officials owned up to the mistakes of the past and made the difficult choices needed to chart a sustainable course. They may not get there. The fiscal plan will have to be torn up if voters aren't convinced the city deserves more of their money. But regardless of how the tax measure plays out, the type of waste that long typified Stockton's spending habits appears to be a thing of the past.

"Believe it or not, this is now one of the more fiscally savvy cities in the state," says Michael Fitzgerald, a columnist with the Stockton Record. "We've all read the big boring book of bonds to avoid stepping on any more landmines."