Originally posted at Public Sector Inc.
By Steve Malanga.
A recent story in the New York Times noted that Stockton was exiting bankruptcy and returning to solvency but without addressing its crushing pensions debt. What exactly does that mean in terms of the city’s budget? The Times story doesn’t quite say, but it’s easy enough to see from Stockton’s budget documents.
Pension debt has remained prominent on Stockton’s balance sheet. In 2009, before the city declared a fiscal emergency, it spent $27.9 million paying Calpers, the California retirement system, and another $6.9 million on pension obligation debt. Since then those Calpers payments have risen to $33 million in fiscal 2012, while the debt service on the bonds increased to $7.2 million. Pension spending rose from 21 percent payroll to 31 percent for public safety workers, and from 13 percent to 17 percent for everyone else.(click chart at right to expand)
All of this amid a slump in revenues that saw the city’s general fund shrink from $173 million to $154 million. To absorb the growth in costs Stockton cut its payroll by about one-quarter. Its police force alone shrunk from 441 to 350 amid a sharp increase in crime.
Unlike Detroit, where the city’s fiscal manager has pledged to reduce pension debt, Stockton declined to take on Calpers even though a federal judge recently ruled that state protections against reducing pensions do not trump bankruptcy law. Still, Stockton will now have to live with its pension debt, which Moody’s recently estimated at $500 million, though the city has told workers it will no longer provide them with health care in retirement, and it did give a haircut to holders of the pension bonds. Stockton is planning to raise taxes by some $10 million or so to help finance its budget and especially to rehire police officeres, and it has an agreement with bondholders to reduce and stretch out repayment of its bond debt.
But as the Times story makes clear, not everyone thinks this is sufficient to stay out of fiscal trouble in the coming years, especially with the example of Vallejo, which finds itself confronting growing deficits less than two years after exiting bankruptcy. Moody’s is among those with lingering doubts about Stockton.