Eddie Barkett writes:
“Your column today was especially good, as it highlighted the massive national implications of Stockton’s bankruptcy.
“These implications, pitting bond holders against pension participants, are so large that we are naive to think Stockton will emerge from Chapter 9 any time soon. There are literally hundreds of cities like Stockton across the country that cannot simultaneously fulfill their obligations to their pension participants and their bond holders.
“This is a kind of financial civil war, where one or both groups will be forced to accept less than their contractual rights – and that has never happened before. This case (and possibly several interim rulings in the case) is going all the way to the U.S. Supreme Court. Judge Klein’s recent ruling clearly highlights the complexities of the case and the likelihood of protracted court battles at the highest level. I think we are looking at 5-10 years of bankruptcy litigation.
“Given this time frame, some City leaders are remiss in stating that we should wait until Stockton emerges from Chapter 9 to take serious action on taxes, crime, etc. Specifically, the mayor’s sales tax for public safety proposal has been opposed on the ground that we must resolve the bankruptcy before moving forward with new financial and public safety measures. If we follow this path, we will be waiting perhaps a decade to deal with our core problems. Stockton is ground zero in a financial civil war that is national in scope. Peace in that war will take so long to achieve – because there are so many people in so many places affected by the outcome – that our internal problems will only worsen if we wait to resolve the bankruptcy first.
“Further, I would like to offer a perspective that has yet to be articulated in the press. So many commentators have portrayed the bond holders and insurers as Wall Street fat cats (or “bigwigs”). It is so easy – justifiably so- to vilify that group and to argue for them to take a loss.
“However, the interest of the bond holders is really the interest of the entire citizenry of Stockton. Access to the municipal bond market is critical for a city to fulfill many of its missions, including civic projects and basic infrastructure. If we sacrifice that interest in favor of the pension holders, we will really be sacrificing the interest of 300,000 Stocktonians in future public works to satisfy the interest of perhaps 2000-3000 retirees who were overcompensated for doing an average job at best.
“Further still, a huge portion of our municipal bonds were issued as pension obligation bonds – the City borrowed on the backs of 300,000 citizens to give the money to Calpers so that it could meet its promises to those 2000-3000 retirees. Sometimes, the most complex decisions can be reached by applying simple wisdom. In this case, that wisdom is, “The needs of the many outweigh the needs of the few.”
An excellent letter. Better determining the likely length of Stockton’s bankruptcy is key to judging the mayor’s proposed cops tax. Or any fiscal policy.
But city leaders have not suggested waiting until Stockton emerges from Ch. 9 to take serious action on crime. The Marshall Plan is serious action. They have suggested that a tax restricted to crime presents two problems.
One, it is a self-serving side deal sure to inflame the city’s creditors in restructuring negotiations. Two, it strengthens only one (admittedly essential) department when all are enfeebled to the point of collapse. All must be nourished by a tax. But voters will be less likely to pass this crucial holistic tax if they have already passed one for cops.
Public safety is the key to passing a tax not only to strengthen the city but to pay off Stockton’s debts. Voters won’t pass a tax to pay off debt. But they will if the measure promised cops, with debt payment in the background.
The as-yet hidden part of this issue is the mayor’s drive towards a strong mayor initiative. He needs to succeed on his cops tax for that to fly. Analyzing that issue requires analyzing the mayor’s supporters and what sort of political payback they ask in exchange for their support of the mayor. We haven’t gotten there yet. But we must before we take our positions on the cop tax.