City Bankruptcies on the Rise
It wasn’t the first California city to go belly-up, but Stockton made history in June when it became the largest US municipality ever to declare Chapter 9 bankruptcy. Now, this Golden State phenomenon is threatening to turn into an epidemic, as cash-strapped cities elsewhere find themselves unable to meet their financial obligations.
Reason.TV’s Zach Weissmueller examines how Stockton went astray through a combination of lavish public works projects and crippling public employee contracts, negotiated at the height of the real estate bubble when robust property taxes filled the city’s coffers. All told, Stockton currently faces more than $800 million in unfunded liabilities for pensions and other post-employment benefits.
Stockton’s situation is grim — murder rates have escalated owing to police layoffs necessitated by the city’s debt-servicing. The greater challenge: Reason Foundation senior analyst Adam Summers warns that many other US cities could land in the same sinking boat. “There’s a real kind of moral hazard, whereby [city officials] have incentives to offer goodies to people, knowing that they won’t have to bear the costs of those decisions,” says Summers.ARVE Error: need id and provider