Stockton, California’s Bankruptcy Makes 'Normal' Cities Nervous

There’s not a big, identifiable problem that’s driving Stockton, Calif., into bankruptcy. That’s why other cities are worried about its example.

Many of the high-profile public-sector bankruptcies over the past few years were triggered by massive projects that went bad, like the $3 billion sewer bond problem in Jefferson County, Ala., or Harrisburg, Pa.’s big incinerator. That has allowed municipal mavens to argue that forecasts of waves of bankruptcies from the likes of analyst Meredith Whitney are overblown.
The central California valley town of Stockton, however, has no such signature failure. Its woes are the result of a combination of many different factors.
Sitting beyond what was once considered the outer edge of the Bay Area, Stockton has been particularly hard hit by foreclosures. Its retirement benefits have been on the generous side -- people who worked for the city for as little as a month could count on health coverage for life. It also borrowed money during boom times for some high-profile projects along its waterfront. The city made some poor decisions, but nothing hundreds of other places haven’t done.
Because its recipe for disaster was not unusual, many other California cities are nervous. City officials from Fresno to San Jose are using Stockton as a warning of what could happen if they aren’t able to trim pensions and make other changes to what has been standard operating procedure. (Please read Stockton, California's Debt Problems May Set Precedent.)

Read more: http://www.governing.com/topics/finance/gov-stockton-californias-bankruptcy-makes-normal-cities-nervous.html