Jon Gabriel from FreedomWorks recently wrote the following article about how the local government of Stockton, California, went on a spending spree during the housing bubble. This created a big unsustainable government and led to a bankrupt government. The local government borrowed $300 million to build, based on the false nation of wealth and prosperity created by the housing bubble. Today, Stockton is bankrupt.
More foolish than the politicians’ building boom was the evermore lavish (and theoretically unending) benefits for public employees. City employees only had to work one month then retire for the city to cover their and their spouse’s insurance for the rest of their lives. After Stockton dug themselves into endless debt, they did the only thing they could, becoming the largest city in America to file for bankruptcy. This week, a federal judge ruled that Stockton was eligible for bankruptcy protection and can develop a plan to reorganize its debt. The biggest part of that debt is the nearly $1 billion the city owes to the state’s employee pension plan, CalPERS.
The biggest question in the Stockton bankruptcy isn’t “how could this happen?” but “who’s next?”San Bernadino stopped paying creditors and CalPERS last year and is requesting bankruptcy protection, while Fresno is considering a similar fate. Outside of the Golden State, Miami is under an SEC investigation for making struggling taxpayers fund a $600 million baseball park and Harrisburg, Pa. might request bankruptcy for a second time.