City of Stockton, Calif. to take up bankruptcy budget plan

[RockX]

Stockton, California was poised on Tuesday to take a major step toward becoming the largest U.S. city ever to file for bankruptcy after talks with its creditors on Monday at midnight.

Negotiations aimed at averting bankruptcy may press on informally, the city's spokeswoman said, adding that city officials would next discuss any moves toward bankruptcy at the city council meeting on Tuesday evening.


The council's main order of business will be taking up and voting on a proposed budget to guide Stockton during bankruptcy, an option city officials have been considering since February.
City Manager Bob Deis, who the council has authorized to file for Chapter 9 bankruptcy, last week unveiled the budget proposal, also known as a pendency plan.

The plan assumed Stockton, a city of 292,000 people about 85 miles (about 135 km) east of San Francisco, would fail to win concessions from its 18 creditors to close its $26 million shortfall for the fiscal year beginning on July 1.


To help close the budget gap, Stockton's plan would suspend $10.2 million in debt payments, a move likely to trigger rating agencies to further downgrade the city, and reduce spending on employee compensation and retiree benefits by $11.2 million.

About $7 million in savings would come from cutting retiree health care benefits for one year and then phasing them out. Stockton officials have said the benefits are a crushing expense due to their fast rise and projected liability of $417 million.


Stockton's confidential mediation with its creditors - required by a state law approved after the bankruptcy of Vallejo, California in 2008 - was part of an effort launched in February by city officials to restructure the city's finances in time for the beginning of its next fiscal year.

The plan, however, left open the possibility of a bankruptcy filing in light of Stockton's severe financial troubles.

Stockton's finances collapsed along with its housing market, forcing city officials to slash $90 million in spending in recent years and a quarter of positions across agencies.


Despite the cuts, Stockton has not been able to avoid recurring deficits. Its revenue is weak and its financial troubles have been compounded, according to city officials, by generous pay and benefits for city workers and retirees and too much debt taken on by the city when it enjoyed a home-building boom in the early part of the last decade that transformed it into a distant bedroom community for the San Francisco Bay area.



http://in.reuters.com/article/2012/06/26/economy-stockton-idINL2E8HQ0UF20120626


No Problem....I heard Gov. Moonbeam has the solution....
RAISE TAXES!

 

[Howey]

Reading your article, I find that you, and the author, are placing the blame for this solely on the public employees and unions of Stockton, CA.

Unfortunately, if you were to look past the Drudge Report, (yes...it's right there on top with a link to the Reuters article) and did a little investigating, you'd find the unions had very little to do with this.

Yes, I know...that's from the horribly liberal PBS. So, here's an even more detailed piece from the WSJ, most definitely not a liberal outlet.

Stockton exemplifies the fiscal hole that many municipalities have dug for their taxpayers. Starting in the mid-1990s, the city began attracting frenzied bargain hunters who drove up home prices nearly threefold. Then the California home market crashed spectacularly in 2007. Foreclosures soared, tax revenues declined, and Stockton discovered that the weight of its fiscal commitments might spell bankruptcy.

The city's fiscal history "has eerie similarities to a Ponzi scheme," says Bob Deis, the city manager Stockton hired in 2010. Over the years, the city promised employees huge—and unfunded—salaries and benefits, so when trouble struck officials began cutting back on services such as police and fire protection, plus libraries and parks.

In last year's budget, Stockton admitted that its biggest problem has been a lack of transparency resulting in a host of "hidden costs" in labor agreements for "obligations that are often difficult for citizens to identify or understand."

The city recognizes more than 100 different categories of "additional pay" that employees can earn to boost their salaries but that still make basic compensation packages appear reasonable to the outsider. A fire captain earning an annual base salary of $101,000, for example, can easily increase that by $35,000 thanks to additional pay for everything from automatic annual stipends for uniforms (regardless of need) to more schooling.

Perched precariously atop this mountain of obligations are retiree health benefits. Stockton officials awarded these to city employees in a series of votes in the 1990s but made no effort to fund them, intending simply to pay costs out of their budget as workers retired.

Stockton Mayor Ann Johnston voted for these expensive measures when she served on the city council. "We didn't have projections into the future what the costs might be," she told the Record, a Stockton newspaper, earlier this month. She added, "I learned that you don't make decisions without looking into the future."

Council votes to approve ever-greater benefits were often unanimous, according to Record columnist Michael Fitzgerald. "Nobody gave thought to how it was eventually going to be paid for," says Mr. Deis, the city manager.

Blaming the unions and union employees for the sheer stupidity of the actions of the city's government is well, stupid.

Who's responsible for Stockton's likely bankruptcy?

I reviewed thousands of pages of city fiscal documents back to 1990, seeking answers.

Let's start with Dwane Milnes, city manager from 1991-2001. According to city records Milnes negotiated:

» The unaffordable "3 percent at 50" pension for police and fire.

» Employer Paid Member Contribution, commonly known as pension spiking.

» 5 percent annual raises for retirees.

» 2 percent at 55 retirement for miscellaneous employees.

» A staggering expansion of retiree medical benefits.

The medical plan conferred full lifetime medical with no co-pay (!) to employees and spouses. A potential $400,000 benefit, unheard of in the private sector.

The criteria made some employees eligible after only one month of service in Stockton.

During Milnes' tenure, the city handed out many benefits with no actuarial analysis of their true, long-range cost.

Milnes did not return phone calls for this column.

Suspiciously, some perks such as add pays were not even mentioned in staff reports to councils; sweeteners lay hidden deep within attached contracts.

Some council members apparently didn't know the true cost of compensation they approved.

As for the platinum retiree medical, no money was put down on it. The "Milnestone" around the city's neck swelled to a leviathan $540 million to $560 million by fiscal 2011-12 (it has since been reduced to a still-outsized $417 million).

Meanwhile, employee compensation grew so large the city had to shoulder a $125 million bond to pay for it.

In March, Milnes admitted he grossly underestimated medical inflation. He was not alone. Most contemporary projections erred.

Milnes also explained why he recommended first-class pay and benefits: because renegotiating contracts every year with ornery employee unions ruffled him and interfered with municipal operations.

"I told the City Council these short-term contracts had to come to an end," Milnes recounted. "We needed six-year contracts to get some peace around here. The price of long-term contracts was we had to enhance the benefits."

Translation: We paid the unions to go away. A remarkable admission from a man paid six figures to stand up to unions and represent the public's interest.

Those long-term contracts proved lethal. Even as revenues nosedived in the recession, the contracts locked the city into premium compensation. Even juicy raises.

Milnes was far from the sole actor. The city had CFOs, a fiscal team, mayors Joan Darrah and Gary Podesto and numerous council members.

Nor was Stockton alone. Most of these benefits were a statewide trend. Cities everywhere are struggling with them.

Still, a $560 million unfunded retiree medical liability, a $125 million bond debt - $785 million in debt - what a legacy.

There's more. City government bloated into a culture of fat-cat privilege. Many employees lost their sense of duty to the public. They became all about the paycheck.

Gary Podesto, mayor from 1997-2004, took responsibility for his part.

"The council that I was on - and myself - after 9/11 of course, gave the big boost to public safety folks," Podesto said. "We didn't realize the consequences."

Podesto and his handpicked successor to Milnes, Mark Lewis, city manager from 2001-06, added giant new debt with ambitious building projects in the 2000s.

Emboldened by the boom, they ignored warnings.

"We've strained everything we've got to get to a place where we can finance this project," Councilman Richard Nickerson, the lone dissenter to the Events Center, said March 2, 2004. "And if it doesn't go perfect, ... heaven help us."

On top of cash outlays in the tens of millions, the city racked up bond debt on the Hotel Stockton ($13M), arena and ballpark ($46M), parking garages ($32M) and the Essential Services building ($13.5M).

To that later was added a marina ($11M), a new City Hall ($40M) and various city improvements ($35M). And more.

Preoccupied with building, leaders ignored ever-fattening employee compensation.

"In hindsight, we should have addressed it," Podesto said. "I'll take full responsibility for not addressing it. Because we were trying to create revenue opportunities."

But Lewis gave sweetheart deals to the arena sports teams and an incompetent venue management company. These ensured not revenues but a $2 million to $2.7 million annual arena operating deficit.

In fact, virtually everything Stockton built loses money. The pattern: cost overruns, bad design, wishful thinking and unfavorable contracts. In Stockton city government, losing money somehow ceased to be a bad thing.

At least in the capital projects Stockton has something to show for its money, Podesto said.

"This country is in a depression," he said. "When we come back from that, we have very decent ... assets downtown that will continue to benefit downtown."

Podesto's successor, Edward Chavez, mayor 2004-08, and Gordon Palmer, city manager 2006-09, buried the city.

By the time of their tenure, insiders knew Stockton's fiscal situation was critical. Had leaders exacted tough employee concessions in 2008, the whole bankruptcy debacle could have been averted.

Instead they fiddled.

Chavez' apathy and failure to act, coupled with Palmer's paralyzed incompetence, is an indictment of Stockton's senior statesmen who supported them. Chavez also did not return phone calls.

Developers and other business leaders supported Chavez because he agreed to give them entitlements to build sprawl under Stockton's General Plan 2035.

Hence, a related Stockton problem: certain Stockton business leaders view City Hall as nothing more than a cash register. Good governance with a broad public benefit is not their concern.

There are other causes. The recession, state raids on city funds, and incompetent bookkeeping, to name a few. You could write volumes.

The real tragedy is the city's lost chance. The chance to seize a boom and create a better economy, a higher quality of life, a special waterfront urban experience. That city is now just an alternate future, the one that got away.

 

[PostmodernProphet]

is California too big to fail or can we let them go?........