By Kyle Olson
Stockton, California appears to be in some deep financial trouble.
According to The Los Angeles Times, Stockton has filed for bankruptcy.
The northern California city, with a population of just under 300,000, is the largest U.S. city to file bankruptcy, according to The Wall Street Journal.
Last week the city filed for Chapter 9 bankruptcy after rising labor costs and expensive civic projects caused them to go into serious debt.
However, Stockton is not alone in this long economic battle. According to Reuters, nearly 90,000 U.S. cities, towns & municipalities are still struggling to recover from the housing market crash that has crippled the nation and effectively sent the U.S. economy into a recession like state.
Some notable cities that are facing the same fate as Stockton are Providence, RI., Scranton, PA., Camden, NJ., and last but not least Detroit, MI.
Most of the cities on the cusp of financial collapse have deteriorating, stagnant industries and have seen a particularly rough housing market in the wake of the financial collapse of 2008.
Experts say that it is rare that a city of Stockton’s size fails to the point of bankruptcy, but it goes to show the state of the economy Americans currently find themselves in.
Previously, Alabama’s Jefferson County, which is home to Birmingham, filed the largest ever-municipal bankruptcy, totaling $4.32 billion.
As of the date of the filing, Stockton had a $26 million dollar budget deficit and failed to develop an emergency budget that would have slashed employee health and retirement benefits.
Another area of government that gets affected by diminishing funds is infrastructure. Experts warn that if roads and sidewalks become bad, the city doesn’t have the money to repair what could be a dangerous hazard.
Factors working against Stockton are its crime problem and foreclosure rate. Stockton currently ranks second in the nation in violent crime and currently has the second highest foreclosure in the country.
The difficult nature of bankruptcy for struggling cities is that getting out of debt is only half the battle. According to experts, cities must not only recover the money that was mishandled, but also retain capital while maintaining residents and businesses that will rejuvenate the city.
The bad news for the people of Stockton, California is that Chapter 9 is seen as a last resort, according to bankruptcy experts. It goes to show that the city has exhausted all of its options regarding avoiding bankruptcy.
The hardest hit residents of Stockton are city workers and retirees who will see benefits and pensions slashed due to the bankruptcy filing Thursday, according to the Washington Post.
The very benefits and pensions that will be cut may have very well been the open would that led to the constant bleeding of funds that got Stockton where it is today, bankruptcy court.
Although Stockton has seen nearly $90 million in deficits over the last three years, experts say that filing for Chapter 9 bankruptcy will eventually get the city on the right course, as long as they make the right moves after filing.
One bright spot; Orange County California filed for bankruptcy protection in the early 90’s and is currently a AA- rating by Standard & Poor credit agency.
The message? There is hope.