Stockton residents angered by bankruptcy move

(CBS News) STOCKTON, Calif. - Residents of this northern California city were angered and frustrated by city leaders' decision to set the municipality on track to declare bankruptcy with some going as far to call it "a death sentence."

After failing to reach an 11th-hour deal with its creditors Monday, the city council voted 6-1 late Tuesday night on a pendency plan for a day-to-day operating budget as it moves forward with seeking bankruptcy protection, making it the largest American city to do so, CBS Sacramento station KOVR-TV reports.

"Somebody really dropped the ball," Stockton resident Theresa Fewell told KOVR-TV Wednesday, "and, you know, city leaders, it's just a big mess, and somebody has stirred up the pot the wrong way."

At Tuesday's meeting, dozens more residents voiced their opposition to the bankruptcy move, which would cut health care benefits to retired city workers.

"The pendency plan is a death sentence to some, and to others it's an unavoidable slap in the face," Joni Anderson told city leaders.

"The world is watching, so they can see we are victims of a society that is failing us," another resident said.

"What is wrong with you people?" another asked the council. "Do you even care?"

"You failed," said a fourth resident. "You failed this city, and you failed all of these people."

Stockton was a city with big dreams, CBS News correspondent Ben Tracy reports.

In the mid 2000s, it overhauled its marina, built new parking garages, bought a new city hall and put up a new arena.

The housing market was on fire, and tax revenues were pouring in, so the city took out $190 million in bonds and loans to pay for the projects.

"Everyone was still living high on the hog," said Bradley Koster, who owned a bar downtown. "On Friday and Saturday night, the hockey team played, and we packed the place."

But then the Great Recession came to Stockton. Unemployment is nearly 20 percent, and the foreclosure rate is one of the highest in the nation. Tax revenues have plummeted, and the city faces a $26 million deficit. The bank just took back parking lots and the future city hall.

It's fair to say Stockton was living beyond its means for a long time, said City Manager Bob Deis, "but it was incremental."

Deis said Stockton can't afford its boom-time borrowing because it also has skyrocketing pension costs and city employees who get free health care for life.

Stockton is staring at more than $400 million in unfunded health care liabilities.

"We just don't see it as viable that we could ever pay that off," Deis said.

California state law requires that the city negotiate with its unions, including its police officers, for up to 90 days. There's been no agreement, so now Stockton faces its ultimate Plan B: bankruptcy.

Peter Navarro, a professor of economics at the University of California, Irvine, said there is "a long queue out there of cities like Stockton that are going to be doing the same thing."

Navarro pointed to such cities as Vallejo, Calif., and Central Falls, R.I., which also went bankrupt, largely because of unfunded pensions. Jefferson County, Ala., filed for Chapter 9 protection, sinking in $3 billion worth of debt.

"This is not a story about Stockton," said Navarro. "It's a story about the failure of our national economy, and the reason is simply because we don't make things anymore."

Koster just closed his bar.

"I had loyal people that worked for me for years, and that hurt," he said.

And it's one more business Stockton cannot afford to lose.

[TJphoto]

Hello Public Service Unions. It's wake up time. It used to be that civil service paid less than the private sector but with benefits. Over decades this trend has been reversed. Now you you make more than the private sector, with benefits that we wish we all had, all at taxpayer expense. The well has dried up. Enjoy your retirement that we in the private sector only wish we had. Government jobs don't and shouldn't be a means to easy street.

[rockychance]

America is falling fast financially because we promised too much to too many and our political parties refuse to tell the people the truth. Man, is this ever sad!

[barnflies]

When you tell people the truth they disbelieve it and turn on you. Yes, it's sad. It's going to get worse (there ya go, disbelieving again).

[arthanyel]

This situation was not primarily caused by unions - at least not directly. It has been a long standing trend that public sector jobs pay less than equivalent private sector jobs, and the way to level the difference was above average benefits.

And for anyone that thinks that earlier retirement for jobs like firefighters and police are "inappropriate" I suggest you try putting your life at risk multiple times a day until your body gives out from the strain, and see how you think about the problem then.

No, the real problem is politics as usual - where the congress/administration makes commitments that it has no way to cover, and assumes that at some point in the future someone else will deal with it. Rather than face the hard budget choices of renegotiating employee compensation or deferring desired priorities, city, county state and federal governments just promised the moon and kicked the can down the road.

So don't blame the unions for representing employees trying to get them a fair compensaiton package - blame the politicians for offering or agreeing to unsustainable spending instead of dealing with the core problems.

[Davisrad]

Sounds like the retired city workers will have to pony up for their health insurance just like the rest of us folks who work in the private sector. Even in Wisconsin (where our Republican governor just won a tough recall election and our state pension fund was voted among the best in the nation) our retired government workers pay for their own healthcare. They can save up an unlimited number of sick days & convert these days to a cash balance to be used to pay the premiums in retirement. Once it runs out, they pay the ful cost themselves. It's a tough situation, but maybe retirees would be wise to offer to pay their health insurance and at least keep their pension benefits coming. Likely they won't get to keep both. Also scary that the same problem will occur at the Federal level when Social Security is depleted with hoards of baby boomers yet to collect.

[m7856j]

It is a sad situation when California government of duly electited officals can not come up with a proper taxes to insure that individuals who have and are paying taxes still can not fund the basic needs of its citizens police fire employes of any city are basic needs of any city everything else can be put on hold until they are on board first yes some pensions may be adjusted as needed how can we expect police and firemen to do the job they were hired for if the rules will change when they are on the job respectfully michael

[vsmit]

Free lifetime medical care HARDLY classifies as "basic needs". Good for the duly elected officials reigning in out of control spending occuring at the taxpayers expense.

[TomMariner]

It sounds like there was an orgy of development, but the article seems to say that the retirement benefits are the core of the problem. Long ago government jobs were low paying, but offered great vacation time and modest retirement based on modest salaries. Government pay has skyrocketed, along with the benefits.

Unfortunately, the private sectors have dropped free health care either while working or retired, have zero retirement benefits, and dropped pay. So the public service have to belly up to the bar just like the rest of us and figure out what the heck to do with no income and having to pay some or all of their health care costs.

Or the cities could go bankrupt, abrogate the labor agreements, and devote all of their tax revenues to the now gigantic borrowing costs.

[DawnGurl]

Public unions and bloated government have bankrupted America as well. Time to dramatically scale back the big beast.

[marthanurse]

When firefighters retire at 50, get 100K or more, something is wrong.

The taxpayers have been fleeced for years. It's just now time to pay the piper.

Public unions have gone to the trough once too often. It's time for the pigs to be slopped one last time, taken to slaughter.

The taxpayers have been slaughtered enough.

[skreeve]

This is exactly why the Nancy Maxine Barbara and Barack Obama model of economics doesn't work. WE MUST VOTE THEM OUT OF OFFICE if California and this country will ever have a chance to prosper. Seriously people. Stop trusting and voting for politicians who tell you they will give you free stuff. Sooner or later it hits the fan and everyone suffers. Even you.

[MaMagda]

When any company or government organization gives away lavish DEFINED BENEFITS, they deserve the consequences of their mismanagement. Bankruptcy and the nulling of those benefits are a natural result. Who the heck is going to pay for it forever and free. A more sensible approach if organizations want to offer retirement services is defined contributions. This ends liability in the present. That is way more predictable. Now these people who lost benefits are whining, really!

[jsf14]

It is possible to have a fully-funded defined-benefits plan if and only if the city (or other employer) makes sure that the contributions are made and that the fund is used only to pay benefits. What has happened is that the city or state or whatever sees the fund as money they can use and sees not paying their contribution as a way to balance their budget and decreasing employee pay-in as a way to make it seem as if employees are getting a raise. )It seems to me that the stupid decrease in FICA payments recently was just as short sighted.) If the employer pays in properly, makes sure the employees pay in properly, and does not take money from the fund, then benefits can be paid. But this may be too much fiscal responsibility to hope for.