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The city was founded in the midst of the California Gold Rush. So when the early-2000s real estate boom hit Stockton, they thought history was repeating. In just seven years, property values tripled, tax revenue spiked and the city's leaders had dollar signs in their eyes.
Instead of recognizing the unsustainable growth as a bubble, Stockton went on a spending spree. Even worse, city leaders weren't content with their record revenue, but borrowed $300 million to build sports arenas, shopping centers, theaters, and a palatial waterfront complex. Long considered an agricultural backwater to the hip Bay Area, politicians were eager to announce to the world that Stockton Had Arrived.
(Insert the sound of a bubble popping here.)
Property values collapsed and took the tax revenues and favorable credit ratings along with them, transforming Stockton from California's Great Inland Hope to one of America's Most Miserable Cities.
The new, but never opened, city hall was repossessed along with government-funded parking garages. Arenas and theaters remained unfilled. The city slashed essential services such as police and fire, causing crime to shoot up. Property values and credit ratings plummeted further.
More foolish than the politicians’ building boom was the evermore lavish (and theoretically unending) benefits for public employees. City employees only had to work one month then retire for the city to cover their and their spouse’s insurance for the rest of their lives. After Stockton dug themselves into endless debt, they did the only thing they could, becoming the largest city in America to file for bankruptcy.
This week, a federal judge ruled that Stockton was eligible for bankruptcy protection and can develop a plan to reorganize its debt. The biggest part of that debt is the nearly $1 billion the city owes to the state's employee pension plan, CalPERS.
The biggest question in the Stockton bankruptcy isn’t “how could this happen?” but “who’s next?” San Bernadino stopped paying creditors and CalPERS last year and is requesting bankruptcy protection, while Fresno is considering a similar fate. Outside of the Golden State, Miami is under an SEC investigation for making struggling taxpayers fund a $600 million baseball park and Harrisburg, Pa. might request bankruptcy for a second time.
The municipal poster child for fiscal incompetence is Detroit, which has a $327 million deficit and $14 billion in long-term debt. Things are so bad in the Motor City that Michigan governor Rick Snyder appointed an emergency financial manager who has the power to strip elected officials of their powers and pay, sell city assets and void union contracts.
Limited government isn’t just a matter of politics or ideology — it is a matter of morality. When a city fails, the ones who suffer are always the poorest and most vulnerable. Miami is listed as one of the 25 Most Dangerous Cities in America, while Detroit and Stockton made the Top 10. The middle-class and small businesses are too upside-down in their real estate to avoid the literal crossfire.
Whether a city, state or nation is in a boom time or a bust, the only government that citizens can afford is a small one.
Follow me on Twitter at @ExJon.