San Jose, CA — With the recent Chapter 9 bankruptcy filing of Stockton, the rest of California, as well as other cities and states can pick up several lessons on how municipalities should balance their policies with sustainability to avoid getting into a financial disaster. Stockton is one big example on what happens when bad economy meets bad, unsustainable policies.
Stockton is the biggest city to date that has filed for bankruptcy which makes people wonder, if a big city like Stockton can fall on its knees economically, what chance do other smaller cities and municipalities have to to avoid bankruptcy? How did this happen?
Let us look on the mistakes that Stockton made in terms of making policies and using its budget. During its heyday, Stockton has been one of California’s bustling cities being a port city and the transportation hub of many agricultural products. And when an economy is booming, it is able to give back a lot to its people. Part of the fault of Stockton is that it may have been too gracious to a fault.
In the city’s history, the Spinach riot or the Stockton Cannery Strike of 1937 shows how powerful the labor unions are in Stockton and up to the present, the labor unions had been able to wield their strength via collective bargaining agreements to iron comfy retirement benefits and pensions for themselves to the area of around $800 million. An amount that has been committed by the city but is unfunded.
For years, Stockton borrowed money from creditors and had lengthily financed unsustainable liabilities like the health benefits and pensions of retirees. Not that it’s a bad thing but they were unable to place caps or measures on amounts that would protect the city coffers in case of money problems. This is because Stockton was afraid of the labor groups backed by their allies in the state public pension fund would sue and this will further bury the city in debt. As proof of being way into debt, even Stockton’s new city hall had been repossessed by creditors.Instead of renegotiating, Stockton instead slashed funding for park maintenance, closed down libraries, retrenched one-third of its fire department and removed twenty percent of the police force.
It’s not that the city did not try to negotiate but during the fiscal emergency, city was unable to successfully negotiate the restructuring of benefits and salaries of the labor unions. Despite the already looming financial group, the labor unions still insisted their rights and were unwilling to compromise.
In other California cities such as San Diego and San Jose, these municipalities are trying to avoid the same fate as that of Stockton’s and had been starting to impose reforms in terms of imposing caps on public pension systems and benefits and in the case of San Jose; the city even reduced the benefits for current retirees.
It maybe unfair for workers to suffer cuts in terms of salaries and benefits but it also important for both labor unions and governments to work out a solution on how to balance the spending and not to over-expect on things to be received. What people most likely do not understand is that, the economy is not as great as it is so the everyone should also be able to adjust their expectations. But that did not happen in Stockton.
When the blanket is short , one must learn to twist or adjust himself/herself so that they could fit into it. In the situation of Stockton, the bad choices and policies that the city took along with the unrelenting labor unions, paved the way for them to take the road to bankruptcy.
Unfortunately, the ones that will suffer most are the labor unions and retired workers since with Chapter 9, a municipality can trash any collective bargaining agreements it promised if it is going to be unsustainable. There really isn’t going to be any winner in this case.