California Doom: The First Domino Falls in Stockton

The LA Times is reporting that the City of Stockton is preparing to file for bankruptcy.

This Gold Rush-era port city, an epicenter of California’s agricultural exports, will become the nation’s largest city to seek protection under the U.S. bankruptcy code after its City Council on Tuesday stopped bond payments, slashed employee health and retirement benefits and adopted a day-to-day survival budget.

City Manager Bob Deis likened the process to cutting off an arm to save the body. He is expected to file bankruptcy papers immediately.


Experts say there are no clear answers to what comes next for Stockton or how its fall will affect the rest of the state. Other cities hit hard by the housing bust and state budget crisis are negotiating with employee unions for concessions and are watching to see whether municipal bankruptcy proves medicine or poison.

Los Angeles bankruptcy attorney Karol Denniston told the Associated Press the bad economy, foreclosures and future pension obligations have created “the perfect storm.”

I suppose if I were a politician or city leader desperate to avoid responsibility, I would characterize my long-standing failure to address glaring fiscal challenges as a “Perfect Storm.” But in reality, the storm is a series of problems exacerbated by bad decision after bad decision piled on bad decisions. A storm is a natural phenomenon beyond the power of man. Short-sighted, incompetent and potentially corrupt leadership isn’t.

Stockton is the largest city in the US to ever declare bankruptcy. The question now is how will other municipalities with similar issues respond? Is Stockton the first domino, triggering the greater fall, or a lonely blip as other cities and counties get their fiscal houses in order?

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