Stockton California gets close to filing chapter 9 bankruptcy. Largest city to do so yet!

Stockton California edged closer to filing for chapter 9 bankruptcy protection on June 6, 2012.  The city council authorized the Stockton city manager to file bankruptcy by a 6 to 1 vote after an intense 4 and one half hour public meeting according to an online article in the Los Angeles Times.  The city manager will file for bankruptcy protection for the city if the current attempt at mediation fails.

Stockton had apparently stopped making payments to creditors back on March 27th 2012.  At that time they entered into these mediation discussions that have since failed to resolve their problems.

And it is unlikely that these mediations will work.  The city has released a public statement calling their situation “dire” and that there will be a 26 million deficit by July 21, 2012.

According to the article Stockton is a river port city with 290,000 in habitants east of San Francisco that has the second highest foreclosure rate in the nation as well as a very high crime rate.  An article posted online by USA Today describes Stockton as a “crop abundant” central valley city with high foreclosure, crime rates and unemployment rates.  But it also says that Stockton was named America’s “most miserable city” in a national magazine- twice.

But then the article got to the real reason for the Stockton bankruptcy.  In one sentence they said it all.  Stockton is embroiled in an ongoing dispute with police and city worker unions over pensions.  Here go those public pensions again backed by public unions.

There are many cities with this same problem across the nation right now.  I have blogged about Harrisburg Penn. and Detroit Mich.  Harrisburg filed for chapter 9 bankruptcy and I believe that Detroit may have to eventually along with many other U.S. cities.

These cities have had disputes with public unions over pensions.  These pensions (and other benefits) were promised to city workers in good economic times.  And they were promised by politicians who have since retired.  And these unions often promise the politicians votes if the politicians agree to these pensions.  The politicians do grant the unions what they want because it is someone else’s money that they are giving away.

It is the taxpayers money that is promised to these unions by politicians who want votes.  The politicians don’t have to pay, they just want to get elected.  We see this time and time again.  Here in San Diego the unions were promised contracts that tripled their benefits.  San Diego could not afford it any more than could these other cities and as soon as the economy collapsed San Diego faced bankruptcy like hundreds of other cities could.

This is why FDR himself did not like the concept of collective bargaining for public worker unions.  If city worker unions can collectively bargain and demand benefits from politicians it sets up a whole conflict of interest.

The politician who agrees to give public unions their benefits is not like a president of a public company.  The politician will just award the benefits that the public unions demand if the unions agree to reelect him which they do.  That does not happen in a private company.  Private workers don’t vote for a company president who will give them more stuff.  Even if they did it would not come out of taxpayer pockets so no one would care.

No doubt the city worker unions of Stockton are saying raise taxes on the people and businesses of Stockton to pay for their union benefits.  This is what we hear from other public unions in other cities.  The people of Stockton are getting foreclosed on and they are probably facing unemployment so they can’t afford more taxes.  The same would go for businesses who would relocate if their taxes were raised.

I wrote in my other blogs about the unfairness and absurdity and unworkability of this kind of taxation.  In many cases taxpayers and businesses would be asked to pay larger taxes to pay the benefits of city workers when the taxpayers cannot afford anything like those benefits themselves.  Remember that in San Diego they tripled city worker benefits before the city went broke.  Who else could demand a tripling of their benefits?  Not me.

I also wrote about how I believe that a city exists or should exist to benefit its residents.  A city is not there to benefit its workers over its residents.  I agree with FDR that public unions should not be able to collectively bargain with a city and demand more benefits.  It is a definite conflict of interest where the taxpayer gets screwed and the city ends up in bankruptcy.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation or for any other advice about bankruptcy or debt at (619) 702-5015.   Call now for free credit report and analysis!  For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

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