Calif. City Heading To Bankruptcy Court
Bankruptcy is opposed by the companies that issued and insured the bonds that Stockton used to pay millions of dollars in what had been unfunded pension obligations.
"The city ignores the 800-pound pension gorilla in the room," Neal said.
Deis explained the city needs its retirement plan to stay competitive in the job market and retain employees â¿¿ especially law enforcement â¿¿ at a time when the number of murders in the city has reached an all-time high.
"I ran the risk of a mass exodus of my employees, and at the time we were in crisis," Deis testified. "I couldn't run the risk of more police officer leaving my city when crime was out of control."Neal even questioned the $130,000 the city pays annually to broadcast its council meetings on cable television, and whether it needs a deputy economic development director. "Stockton is a unique community," Deis replied. "One in four lives in poverty. We have 17 percent unemployment today. I would say it's a much more important position to us than other communities." The city was riding high in the early 2000s. The population had grown by nearly 20 percent between 2000 and 2005, and real estate tripled in value. A new arena went up near the city's waterfront. Then the real estate bubble burst and home prices fell 70 percent, wiping out much of the tax base. Within two years, Stockton had accumulated nearly $1 billion in debt on civic improvements; money owed to pay pension contributions; and the most generous health care benefits in the state. Coverage had been provided for life for all retirees plus a dependent, no matter how long they had worked for the city. Last summer, the city began negotiating with creditors â¿¿ a requirement before entering Chapter 9 bankruptcy. Ten employee unions have agreed to temporary wage and benefits cuts.
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts