When Ann Johnston, Mayor of Stockton, California, informed the city council in March that Stockton was about to go bankrupt, making it the largest municipal bankruptcy in history, it took her six hours to explain why. The primary reason was overborrowing, overspending, and thinking that the good times would go on forever. They didn’t.
Between 1998 and 2005 prices of real estate in Stockton, about 75 miles from Sacramento, tripled. For a time Stockton was attractive as a lower-cost bedroom community alternative to Sacramento as home buyers were priced out of that market. Revenues from builder fees and sales and property taxes soared, and then-Mayor Gary Podesto took advantage. First was a luxury downtown sports arena anchored by a Sheraton hotel followed by the redevelopment of the waterfront into a marina and riverwalk. Then came the inevitable expansion of government and generous pensions, including “Lamborghini” benefits for city workers: if someone worked for the city for one month he (and his spouse) became eligible for retiree healthcare benefits for life. To house its burgeoning payroll, the city purchased a high-rise municipal office building at the top of the market for $35 million.
All that has changed. The office building is now vacant, homes in the high-end Weston Ranch development that sold for $450,000 are now listed for sale at $100,000 with few buyers. Unemployment is at 16 percent, and crime has soared. Forbes ranks Stockton as one of the three worst cities to live in in the country.
Johnston told the council that they couldn’t make the interest payment on their indebtedness, that the city’s deficit is approaching