Stockton CA Bankrupt, Your City Next?

Cities filing bankruptcy!  Chapter 9 bankruptcy, to be exact.  Stockton California set off the wave last June, joined by another half dozen cities since.

How come?

Can’t pay the bills, well, duh.

Which bills?

How about a $900 million shortfall to Calpers, the state pension fund.

Ouch.

That for a city with a population of 300,000.

California state law requires that pensions be funded:

Stockton slashed its police and fire departments, halted bond payments, cut employee benefits and adopted an emergency spending plan that cut many city services. But the city continues to pay into the state pension.

(from the L. A. Times article linked to above.)

Many cities, including mine, Detroit, have been building up long term liabilities, pension and other retiree benefits, with no thought as to how they would be paid.  They give away our money in contracts with city employees.  By the time the bill comes due, the politicians who sold us out have usually retired.

Legally, cities, townships, municipalities, counties, et cetera, are creatures of the state, California, Michigan, whatever.  That is, they have only such rights as are granted to them by state law, including the right to exist at all.

Supposedly, we still have a federal system of the United States: the states themselves do NOT get their right to exist from the federal government.

So, states can boss around cities, however they like.

State politicians usually do not want cities or other entities in their states filing bankruptcy.

Because, they fear it will lower the bond ratings for the state.  That is like your FICO score, your credit report.

If you do not pay your bills on time, your credit rating goes down.  If cities do the same, their bond rating goes down, and they have to pay higher interest rates to borrow money.  Which, it seems, every damn one of them does.

Detroit now has an emergency financial manager appointed by the governor.  Who just happens to be one of the bankruptcy lawyers who handed the Chrysler bankruptcy.

Chapter 9 bankruptcy IS a repayment plan, cities cannot file Chapter 7 and liquidate themselves.

But there have not been many of them, so there is not a lot of what we call case law, judges interpreting what the statute means on a given set of facts.

Stay tuned, I guarantee, more cities will be filing bankruptcy.