The city’s lawyers and the lawyers for its creditors began a lengthy court battle over the bankruptcy and whether it has to pay its creditors back. A crucial part of the discussion is whether the city can go bankrupt without having to reduce the pensions of public workers.
What is the problem with Stockton? It had banked on continuing revenue and growth as a city, but did not anticipate the boom-and-bust cycle of the housing market. That, combined with a generous pension plan for its retirees, bankrupted the city.
It is the largest U.S. city to declare bankruptcy, and it seems that Detroit might follow suit. Following precedent, usually bankrupt cities pay back their bondholders. But, Stockton is trying to maneuver around that precedent and leave bondholder hanging. Other bankrupt cities like San Bernandino, California are waiting to see if this precedent can be disregarded during bankruptcy proceedings.
In one of its analyses, it seems that Reuters realized that generous Democratic policies regarding retirement eventually led to Stockton’s demise. It is about time that cities and the public sector face the music.
By Spencer Irvine.