After proving it was insolvent, the city of Stockton, California entered the municipal bankruptcy process last week. The judge hasn’t yet delivered his formal ruling, but here are some of the most relevant reasons for the city’s insolvency, according to Judge Christopher Klein (page 556 most of which you have read here at MuniLand over the past year):
Excessive public employee compensation levels:
Some of the problems were also the incrustation of a multi-decade, largely invisible or non-transparent pattern of above-market compensation for public employees. Among other things, the City offered generous health care benefits, to which employees did not contribute. Retirees had their entire health bills paid for by the City. The City permitted, to an unusual degree, so-called “Add Pays” for various jobs that allowed nominal salaries to be increased to totals greater than those prevailing for other municipalities.
The enormous explosion of retirement liabilities:
Some of the problems were also rooted in generous retirement practices. The pensions, of course, are themselves a form of implicit compensation. Pensions were allowed to be based on the final year of compensation, and only the final year of compensation, and that compensation could include essentially an unlimited accrued vacation and sick leave. So it was possible to engage in the phenomenon that’s become known as ‘pension spiking,’ in which a pension can wind up being substantially greater than the annual salary that the retiree ever had.
There’s been a number of those situations that have come into public view, generally, not entirely from Stockton, as part of a debate that seems to be going on in the larger community. In any event, pension spiking was an issue in Stockton because Stockton’s obligations to CalPERS were based on the amount of pensions that were having to be paid out. So projected pension expenses in particular were soaring.
How police staffing levels had been cut to very low levels:
The Police Chief, Eric Jones, pointed out that even without a 15 percent reduction in police, the Stockton crime situation was a very difficult environment. The Stockton Police Department had — without the 15 percent cut — had about 1.10 officers per 1,000 residents, which is a standard or mode of analysis that U.S. Department of Justice applies. And when you look at the comparable national standard per 1,000 residents for cities of comparable size, it is not 1.1; it is 2.7 police.