Below is an article containing an update on Stockton, California's financial woes. Although it's a familiar story, it does point out what happens at the end of the road unless people take remedial action early enough.
Stockton Moves Close to Bankruptcy says this:
"The city of Stockton, Calif., took a move closer to filing for
Chapter 9 bankruptcy protection late Tuesday night in the face of
The City Council, by a 6-to-1 vote, passed a resolution authorizing
City Manager Bob Deis to declare Stockton bankruptcy if the city can't
reach an agreement with creditors that prevents insolvency by the time a
state mediation process is set to expire June 25, said Stockton
spokeswoman Connie Cochran.
The city of 300,000 owes more than $700 million in long-term debt to
creditors, and officials there say it faces a budget deficit of $26
million in the fiscal year that begins July 1 due to financial problems
that also include high retiree costs.
The city in February began negotiating with 19 parties, including
retirees, city workers, bondholders and bond insurers under a new
California law that requires municipalities to hold mediations before
filing for Chapter 9 bankruptcy protection.
If the city fails to gain debt relief from the creditors, a city
report says Stockton will have to file for bankruptcy before the
beginning of the fiscal year in order to insure the continuation of city
operations such as fire and police.
Chapter 9 bankruptcy protection provides a financially distressed
municipality protection from its creditors while it develops a plan for
adjusting its debts. Creditors can't demand a liquidation of assets to
force the municipality, while under protection, to repay debts.
In California, Stockton Faces Municipal Bankruptcy Vote was a previous article on the same topic:
The deficit is expected to grow to $40 million annually by
2016, according to city records.
Retiree costs and worker compensation helped contribute to the city's
plight, according to city records. The city also made an aggressive
push to build up its downtown, taking on more than $100 million in debt
since 2003. . . .
The city has already defaulted on three sets of bonds, a move city
officials decided to make in order to continue city operations. The
defaults resulted in Stockton's losing control of three parking garages
and an eight-story office building slated to be the city's new city
A report prepared by city staff, which is expected to be presented at
the city council meeting next week, reports that Stockton is already
insolvent and won't be able to adopt a balanced budget by July 1, as
required by California law.
The report, which Mr. Levinson helped write, says the city must
prepare for bankruptcy to file documents before the beginning of the
fiscal year in order to insure the continuation of city operations such
as fire and police.
The report also says retiree costs must be reined in if the city is
to reach solvency. Retiree health costs are expected to increase by 115%
and pension costs by 94% by 2022, the report says. Retiree costs
represent nearly 20% of the city's budget, while another 50% goes toward
salaries and benefits, the report says.
Stockton is one of several California cities facing financial crisis.
Vallejo, north of San Francisco, recently emerged from bankruptcy
protection that it entered in 2008."
And so it goes across the country and in many parts of the rest of the world, too.