It was almost like the gold rush all over again in Stockton, California. With booming property values and tax revenue during the past decade, city coffers were flush and cash was flying to sports arenas, retail centers, office buildings, and parking garages.
Today, Stockton faces bankruptcy. Property values have plummeted, blowing a massive hole in the city budget, and police and fire forces have been cut by around 30 percent. The newly built city hall – which never officially opened – has been repossessed after bond defaults by the city. Bond holders have also repossessed a few new parking garages. The arena – mainly a home to the local minor league hockey team – is under-booked for the foreseeable future. The city has dwindling reserves and is expected to run a budget deficit of around $26 million this year.
Stockton will be entering Chapter 9 bankruptcy to reorganize its hemorrhaging balance sheet and renegotiate with public-sector unions that have heaped hundreds of millions in unfunded liabilities and unsustainable short-term costs on the city. It will be the biggest American city to ever declare bankruptcy.
The tale of Stockton is also a cautionary tale to many cities across the nation that heavily indebted taxpayers during the boom years, including Glendale, Arizona. Just last weekend, for instance, the Arizona Republic reported that the city might need to pledge city hall and the police station as collateral for more bonds.
Like Stockton, Glendale gambled on retail centers and sports arenas. In both cases, much of it was fueled by public debt. Glendale’s overall long-term bonded debt load is just over $1 billion, according to data from the Arizona Department of Revenue. That’s $4,341 per resident of Glendale (over $17,000 for a family of four). By contrast, Stockton’s bonded debt was around $700 million, or around $2,400 per resident – about half of Glendale’s.
Of course there are plenty of differences between the cities. But it’s important to note that for many cities across America, avoiding Stockton’s fate might be simply a matter of making sure they don’t over-leverage themselves during boom periods in the first place.
Constitutional debt limits can provide such a barrier, but in Arizona and many other states, judges have eviscerated debt limits. Policymakers across the nation owe it to taxpayers to consider the importance of limiting public debt, particularly for risky ventures that provide more benefit to private interests or government unions than the public at large.
Goldwater Institute: Living Debt-Free: Restoring Arizona’s Commitment to its Constitutional Debt Limit (PDF)
Sacramento Bee: Vote Tuesday could send Stockton to bankruptcy court
Arizona Republic: Glendale weighs options to cover sports-related debt