Posted 06/27/2012
06:26 PM ET
There are at
least two lessons in the bankruptcy filing of Stockton, Calif., former boom
town gone bust:
1. Don't give
local government workers pay and perks that residents who pay for them can only
dream of receiving in their private-sector jobs.
2. Keep local
government out of economic development and redevelopment, which often are just
forms of local central planning and corporate welfare that usually fail to
achieve their goals.
Stockton is a
northern California city of nearly 300,000, making it the largest in the nation
to go bankrupt. Probably no one has more clearly described what's gone wrong
there than City Manager Bob Deis.
"Stockton,"
Deis explained in an interview with Time magazine several months ago,
"overcommitted to long-term obligations that even under the best of times
the city could not afford."
Topping the
list of overcommitted obligations are high wages and lavish retirement and
health insurance benefits. Symptomatic of the problem is a 56-year-old city
worker — no, make that retired city worker — quoted by Reuters in a news
article on the Stockton bankruptcy.
She is just 56
years old and already retired. Where but in government do people in their 50s
routinely get to retire ... and with taxpayer-funded health insurance? This
Stockton retiree was worried the bankruptcy would force her to pay for her own
health insurance, as the city's new 2012-2013 budget calls for eliminating
retiree medical benefits.
Elimination of
this perk years ago might have helped the city avoid bankruptcy and bond
defaults.
Then there are
economic development and redevelopment. Central economic planning failed in the
Soviet Union, is failing in Cuba and is being abandoned in China. But all
across California and the nation, local officials apparently believe in it by
launching into development and redevelopment projects. It doesn't occur to them
that if a project needs government backing, it probably will fail. The nation
is still waiting for Amtrak to make its first profit.
Stockton has
$700 million of debt, much of it to pay for various economic development and
redevelopment projects. Go to the Stockton city government's economic
development Web site and you'll read, "Economic development is one of
Stockton's main focuses during this time when so many of Stockton's citizens
are facing financial challenges."
You'll see the
city has Enterprise Zone, Advantage Stockton, Brownfields and Financial
Assistance for Businesses programs. You'll see a list of four separate
redevelopment project areas, and you'll be able to find a list of completed
projects. They include Stockton Arena, Stockton Ballpark, Downtown Marina and
The Hotel Stockton. The millions of dollars of city loans and other subsidies
have done nothing to keep the city out of bankruptcy.
Fortunately,
people are waking up. Even people in government.
Nearly the
first thing that Gov. Jerry Brown did on taking office in 2011 was to propose
an end to the state's hundreds of redevelopment agencies to free up money for
schools. Lawmakers passed a bill killing urban redevelopment districts, and
Brown signed it one year ago.
Voters in San
Diego and San Jose voted by overwhelming margins earlier this month to rein in
their cities' retirement benefits. Stockton's bankruptcy shows why those people
did the right thing . .. and why other cities should consider doing the same.
Source: Stanek is a
research fellow at the Heartland Institute in Chicago. http://news.investors.com/article/616372/201206271826/the-lessons-stockton-teaches.htm?p=full
A 'benefit' is never a 'benefit' until it has actually been delivered and consumed. The employees of Stockton did not impose the retirement conditions upon the City; rather, the City entered into agreements with the empoyees to provide these benefits in exchange for the employees labor. The employees kept up their end of the bargain. Now, it is time for the City to deliver on its obligations. Workers, whether government employees, fire, police, teachers, store clerks, dishwashers, etc. always bear the risks associated with taking a job. They must first provide their services before they can receive remuneration. The employer can promise the moon; however, when it is all said and done, the employee has worked and the employer has the option of whether or not to live up to their side of the bargain.
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