Stockton’s high-profile municipal bankruptcy is obviously a complex legal proceeding, but at its core it’s a relatively simple conflict.
The city claims that it lacks the funds to both provide vital services and service many millions of dollars in loans it had taken out. The bonds financed city employee pensions and built new public facilities, including two sports venues.
Bondholders and bond insurers contend that the city has not tried hard enough to trim its other outgoes, particularly its payments to the California Public Employees’ Retirement System and therefore wants lenders to take an unfairly large financial haircut.
The question that the federal bankruptcy judge must ultimately address is whether pension promises are a debt subject to reduction or occupy a special category and are exempt from the bankruptcy process, as the city and CalPERS maintain. After Stockton filed its bankruptcy petition, however, the city’s voters, angry over the civic embarrassment and rising crime rates, elected a new mayor, Anthony Silva, and some like-minded City Council members who promised big changes.
Silva wasn’t kidding. He’s championed a ballot measure that would raise the local sales tax by a half-cent, raising an estimated $18 million a year that would be entirely spent on beefing up the city’s Police Department.
Given Stockton’s growing reputation for violent crime — a new state data report says San Joaquin County, i.e. Stockton, has the state’s highest homicide rate — it’s hard to argue with the need for better policing.
However, proposing a tax increase while the city’s bankruptcy case is pending may undermine its argument that the city has no option to reneging on its bonded debt. And that consequence has sparked an open conflict between Silva and City Manager Bob Deis, who was brought aboard to steer the city through its fiscal meltdown.