(CBS News) STOCKTON, Calif. - Stockton, Calif. could become the largest American city ever to file for bankruptcy on Wednesday.
And economists warn other large U.S. cities could be next.
Stockton was a city with big dreams.
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," recalls 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 those parking lots and the future city hall.
It's fair to say Stockton was living beyond its means for a long time, says City Manager Bob Deis, "but it was incremental."
Deis says Stockton can't afford it's 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 laments.
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, says there is, "a long queue out there of cities like Stockton that are going to be doing the same thing."
Navarro points to cities such as Vallejo, Calif. and Central Falls, Rhode Island, which also went bankrupt, largely because of unfunded pensions. Jefferson County, Ala. filed for Chapter 9 protection, sinking in $3 billion dollars worth of debt.
"This is not a story about Stockton," Navarro stressed. "It's a story about the failure of our national economy. And the reason is simply because we don't make (manufacture) things (goods in the U.S.) anymore."
Koster just closed his bar.
"I had loyal people that worked for me for years, and that hurt," he says.
And it's one more business Stockton can't afford to lose.
To see Ben Tracy's report, click on the video in the player above.