Stockton and Vallejo California, two middling cities already famous for their respective municipal bankruptcy via mismanagement and out-of-control public pension costs, have predictably reached the pinnacle of failure yet again. And we didn’t have to wait long to see it happen. As Yogi Berra once said, “It’s Deja vu all over again!”
The city of Vallejo filed for bankruptcy in May of 2008 with $18 million in debt. During its bankruptcy, the city slashed police and firefighter numbers, retiree health benefits, other services, and payments to bondholders. It threatened to reduce employee pensions, but was “counseled” by public sector pension giant CalPERS not to challenge the pension system. Vallejo’s vice mayor, Stephanie Gomes was quoted at the time as saying “we realized we did not have the time or the money to take on a giant behemoth like CalPERS.”
When entering bankruptcy in 2008, its annual employer payments to CalPERS was $8 million or 11% of its general fund; upon exiting bankruptcy, those payments had increased to $11 million or 14% of the general fund.
The city’s budget deficit for this year is $5.5 million, rising to $8.9 million next year, mainly due to changes CalPERS made in their expected rate of return and the way it calculates long term pension maturity rates. Both changes will mandate higher employer payments from all state, county and local government agencies, including Vallejo. The city is expecting payment rates to continue climbing 33%-45% over the next five years and has no idea how they can fund those increases.
Vallejo will file for bankruptcy again soon.
Stockton differs from Vallejo only in the fact that it has never exited bankruptcy but is once again in financial trouble. Refusing to modify its public sector pension plans (another CalPERS “counseling session”?), city “leadership” is avoiding managing the city in a reasonable way or confronting its employee pension costs problem.
The city’s “Plan of Adjustment” (plan to exit bankruptcy) will instead force bondholders to take a “haircut” and stretch payments over a longer period of time and take possession of a building that was to become City Hall. The city will also go back to taxpayers with a ¾ cent sales tax increase in November being sold to residents as a means to assure sufficient police officers are on the street. If the sales tax measure, measure A fails, the Plan of Adjustment is in danger of collapsing.
We are watching the slow motion implosion of government in California, led by abusive pension costs, retiree benefits, union muscle, and incompetence and/or collusion. This is California’s first “double, double”, but not its last. The California Taxpayers Association has conservatively calculated that State, county, university, and local pension debt totals $ 218.96 billion of California’s total $443 billion in debt. Both numbers, of course, are eroding our lifestyles and are too much to pay off in our lifetime; we will pass them on to our children to ensure the continuing erosion of our way of life.