Penniless California City Officially Files for Bankruptcy Protection
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Penniless California City Officially Files for Bankruptcy Protection

March 29, 2013


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After months of anticipation, Stockton, California, a city with roughly 300,000 residents, officially started the bankruptcy process this Monday, according to a report from ABC News.

Sources say officials from California's 13th largest city still have to convince a federal court that the bankruptcy process should be completed, but if its efforts are successful, it will be the largest city in American history to complete a Chapter 9 bankruptcy.

The city's financial collapse was just as quick as its unexpected rise, according to sources. From 2000 to 2005, Stockton's population grew by almost 20 percent, and real estate values tripled during the same boom, sources say.

In 2005, the city built a state-of-the-art $46 million hockey arena, and also built a new stadium to house a minor league baseball team. The city also saw an influx of Bay Area residents looking to escape heavy traffic and lofty real estate costs.

According to Connie Cochran, Stockton's spokeswoman, the city boosted its spending in order to attract more residents, and many felt like "the good times would go on forever."

Soon, however, the housing bubble burst, and home prices in the once-booming city eventually fell by more than 70 percent. Sources say the city incurred almost $1 billion in debt during this period, much of which was owed to retired city workers for their pensions and health insurance benefits.

Stockton had promised full coverage to former employees regardless of the length of their tenure, which put a tremendous amount of strain on the pension program, according to city officials.

All these factors led to a financial crisis, and prompted city officials to file for bankruptcy, as the companies that insured the city's massive bond obligations started asking for payments.

The financial crisis has taken a serious toll on the city. According to sources, Stockton laid off 25 percent of its police officers and 30 percent of its firefighters. The municipal staff was also trimmed by 40 percent.

The city's overall budget is now $155 million, which represents a $90 million decrease since 2009, sources say. And the city is now the 10th most dangerous town in the United States, according to figures from the FBI.

Most strikingly, Stockton's unemployment rate is now 17.5 percent, which is more than twice as high as the entire country's currently inflated jobless rate.

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