Stockton Discovering that Wasting Money Can Lead to Bankruptcy

Today, Dan Walters at the Sacramento Bee gives us our latest case study in government overspending in California: the Central Valley city of Stockton.

Even though it's the seat of San Joaquin County and California's 13th-largest city, Stockton may soon become known for something else: declaring bankruptcy after failing to close a $37 million hole in its budget. Though Mayor Ann Johnston is promising to do everything to avoid it, the fact that municipal bankruptcy is being openly discussed should tell you a lot. The fact that the city has no clear plan for fixing its budget should tell you something else. Walters compares Stockton's circumstances to those that prevailed until recently in Vallejo: rapid population growth during the housing bubble, and higher tax revenues that led to generous new contracts for public workers and to a foolish downtown revitalization effort, complete with a new marina, baseball park, and sports arena. The city has made numerous cuts, including police layoffs, to stem the flow of red ink, and relations with many of its unions are poisonous now. But that huge deficit remains.

Walters is right to point out that Stockton's predicament mirrors that of many other California cities, and indeed the state as a whole. As many others have pointed out, the highly progressive tax structure in California means that revenues can be highly volatile, and since that structure is unlikely to change soon, governments throughout the state need to start embracing a radically smaller vision of their function, complete with reduced spending, unless they want these sorts of crises to become the norm.