EDITORIAL: They're bankrupt, but Stockton isn't Detroit

Cities' fiscal trouble came from different causes.

FresnoJuly 28, 2013 

Three years after it sought bankruptcy protection, Stockton is beginning to right itself.

ASSOCIATED PRESS FILE

Stockton is not Detroit. Both cities have filed for bankruptcy protection, but the source of their woes could not be more different.

Stockton overreached during the housing boom of the 1990s and early 2000s, running up nearly $1 billion in debt to finance downtown and waterfront redevelopment on the bet that housing prices would continue to skyrocket.

Encouraged by public employee unions, Stockton borrowed money to finance absurdly generous pensions, which were authorized by the Legislature's irresponsible policy.

In contrast, Detroit's downward spiral has taken place over decades. Once an industrial powerhouse, the very name Detroit was synonymous with the nation's booming post-World War II auto industry.

Detroit's decline mirrors the disappearance of the country's manufacturing base once centered in the Northeast and Midwest -- the Rust Belt. During the past half century, Detroit has lost close to two-thirds of its population, dropping from 1.8 million people in 1950 to 700,000 today.

During that same period, Stockton's population quadrupled, rising from 70,000 to more than 300,000.

The global recession devastated Stockton's municipal finances, but it broke Detroit's back. Detroit's income tax revenue declined 40% between 2000 and 2012. Unemployment jumped to 23% in 2010.

But even as its residents fled, Detroit's 140 square miles remained. With a geographic footprint as big as Boston, San Francisco and the borough of Manhattan combined, Detroit had hundreds of miles of roadways to pave, streetlights to keep on, parks to maintain and neighborhoods to police and protect from fire.

But Detroit no longer has the tax revenue from residents and businesses necessary to support its infrastructure or maintain essential services.

Huge swaths of Detroit are empty. Businesses are boarded up. Middle-class and even upper-middle-class homes have been abandoned and are falling down.

Stockton and Detroit face staggering obligations to retirees who outnumber current workers in both cities. But while Stockton has 1,370 full-time employees and 1,683 pensioners, Detroit faces a far more serious imbalance, with a workforce of 9,700 and 21,000 retirees.

Stockton's pension liability is based on overly generous payouts to retirees. Compared with public employee retirement pay in Stockton and across California, Detroit's pensions are modest.

After 30 years on the job, the average Detroit cop or firefighter receives a pension of $30,000 annually. In Detroit, a retired garbage collector or general worker receives $18,000 annually on average.

In Stockton, city workers who retired in the last 15 years receive an average of $50,400 annually, and at least 98 Stockton retirees earned more than $100,000 last year.

As modest as Detroit's pensions are, municipal finance experts say Detroit cannot save itself if it cannot provide minimal levels of public health, safety and welfare to its residents. To the extent that pensions and other retiree benefits crowd out essential public services, Detroit will bleed population and business essential to its survival.

Here Stockton may offer Detroit a model of how best to address the issue.

As part of its bankruptcy restructuring plan, Stockton has negotiated voluntary agreements with current workers to eliminate retiree health care entirely and is awaiting court approval of a plan to eliminate health care benefits for existing retirees as well. City Manager Bob Deis says those reductions will generate $1.6 billion in savings.

Three years after it sought bankruptcy protection, Stockton is beginning to right itself. Employee pay and benefits have been downsized, allowing for necessary investments in public safety.

Stockton's murder rate, one of the highest in the state, is down 63% in the first six months of the year. Residents point to an air of cautious optimism.

So Stockton's message to Detroit is one of hope, not despair.

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