Stockton proposes sales tax hike to put police on the street
Stockton, California was a topic on Morgan Spurlock‚Äôs Inside Man program on CNN this week. The focus was on the increase in crime since the city slashed spending on police and fire in its bankruptcy proceeding. 70 percent of the city‚Äôs budget is spent on ‚Äúsafety‚ÄĚ needs, and the city is broke.
After the housing crisis cut property tax collections, the ax in Stockton had to fall on the next-largest area of spending. City employee payrolls were cut 25-30 percent for public safety and 40 percent for non-safety positions. Now the city has a 3/4 cent sales tax increase on the ballot for November to add police to the streets. The proposed tax would raise an estimated $28 million dollars the first year. It‚Äôs an excellent idea, but not a panacea for the city‚Äôs deep fiscal problems.
Stockton pays very high salaries to city employees, especially to fire and police workers. As I wrote in March:
Stockton is paying its safety officers much higher wages than other communities pay. When the average cost for policeman is $150,000 per year, a community is very limited in how many boots on the ground it can have. Now the money is not there.
The other problem with high salaries is that it translates into high pension costs. Stockton has not challenged the pension liabilities that it owes to CalPERS in bankruptcy, but instead it claims it needs these high pensions to attract ‚Äėqualified‚Äô safety officials.
Stockton‚Äôs city government has not attempted to cut pension liabilities through the bankruptcy process, but bond insurers have. Bond insurers believe that everyone should take haircuts in a bankruptcy proceeding.
Stockton doesn‚Äôt have a lot of municipal debt for a city of its size – about $350 million for 300,000 citizens (about $1,170 of debt per resident). Contrast this with Detroit‚Äôs approximate $11.2 billion of bonded debt and derivatives for 700,000 residents (about $16,000 of debt per resident). But what Stockton has that Detroit doesn‚Äôt have is extremely high pension payouts to retirees. The city has not attempted to reduce them, though Federal Bankruptcy Judge Christopher Klein seems inclined to address the issue. California‚Äôs public employees don‚Äôt have the rock solid protections afforded to Detroit‚Äôs employees in their state constitution.
As I wrote previously, in fairness to taxpayers, Stockton needs to cut pension benefits as part of its bankruptcy efforts. The city is required by law to become fiscally sustainable, so it must either raise taxes, find more expenses to cut or do both. Cutting pensions seems preferable to cutting police on the streets.
If the new sales tax increase – Measure A – is improved in November, the city could devote some of the revenue to supporting retiree pensions and some to debt payments, in addition to adding cops to the payroll. But more importantly, city officials need to work with the federal bankruptcy judge and reduce the pension liabilities through the bankruptcy process.