The Stockton Story

Some facts about Stockton, CA:  2010 population – 292,000 of whom 40% are Latino; 23% white; 22% Asian and 12% black.  Household income - $48,000 which is below the California average of $61,000.  54% own their home and 18% have a bachelors degree or higher (CA ave. is 30 %.)

Thefundamentals has followed the Stockton story for some time now.  If you read this article: http://www.latimes.com/news/local/la-me-stockton-bankruptcy-20120627,0,2285815.story  you will actually find a few key words that summarize the very essence; the basics; the fundamentals of what caused the mess (bankruptcy) in Stockton.  Here is our quick recap –

“Build and spend like there is no tomorrow – add debt assuming there will always be more revenue – make commitments to public unionized employees that are vastly in excess of anything the taxpayers can ever attain on their jobs – give the elected officials  the same package so they will approve it – never cut back; never give up any negotiated benefit or pension or work rule or wage contract – never cut back on anything; instead, if you’re on the gravy train, follow the argument that you earned it; you deserve it; it is owed you and no one can take it away, ever for any reason – when things get tough whine and complain – tell tales of woe and give examples of hardship – anything it takes to make someone feel sorry for you.” 

There is an alternative.  You can go to the recent essay in TheFundamentals about the cities of San Diego and San Jose (see TheFundamentals, June, 19, 2012) and read about two cities – two larger cities that faced the same causal situation and rose up with overwhelming majorities to simply say – enough; we will not let a small group of entitled, over paid public employees destroy our town simply because they have a few labor laws and loud mouthed organizers and well developed fear tactics on their side.

The story of Stockton is the story of Detroit.  It is the story of Vallejo, CA; Central Falls, RI; Jefferson County, AL and every other town that has public employees belonging to a labor union with rising debt.  The unions may be part of the SEIU or the AFL-CIO or the AFSCME or maybe an independent local group with no major affiliation.  The unions consist of policemen, firemen, sewer workers, teachers, municipal water supply workers, clerks, library personnel and every other position in between. They can issue dog licenses, car licenses, business licenses, kitchen rehab permits and liquor licenses or they can come around after the fact and check out your permits and licenses – all in the name of rules, regulations, laws and the public good.

But there is one license that they do not believe in.  One permit they do not issue.  One rule they do not enforce.  It is the license, the permit, the rule of common sense.  Of financial and fiscal responsibility.   Of setting limits on monetary commitments that match the revenue capability of the town.  The revenue capability of the town is not a theoretical or hypothetical calculation.  The revenue is there to serve the people; not the employees.   It is not some hopeful number based on ambitious projections of growth and an always increasing property tax base or business revenue base or population growth estimate or national GDP projections issued by politicians through their bureaucratic hires or by the irresponsible chairman of a central bank or even by the fancy folk with the economics degrees from eastern colleges.

This very minute, as you read these words, there are hundreds of cities and towns and counties across the United States where these words are ignored and the citizens are being forced to empty their already reduced savings accounts to pay for salaries, wages, benefits and pensions that they will never themselves attain or enjoy.  All because the elected officials failed to set limits; failed to stop union organization; failed to say no.  Instead they themselves go along with wages, benefits and pensions for municipal employees that are not affordable.  These are bubbles folks – unaffordable, wasteful spending and costs.  They must come to an end regardless of what Obama or Bernanke or Geithner hope for or say.  Unless you have a local or state government with a fiat (paper) currency trying to maintain the bubble.  Cities and towns do not – all they have is the ability to try to get the currency issuer, usually the central government, to print and distribute currency to keep the bubble alive – which is exactly what the combination of Obama and the other two named above are doing now.  But they cannot possibly do it on a large enough scale to save the Detroit’s, the Chicago’s, the Newark’s and the Stockton’s.

Someone once said, “May you live in interesting times.”

Stockton is living in very interesting times.  Wouldn’t it be nice if the American media, what we call the Hollywood media because of their captivation with all things entertaining, would spend hours on this story and leave the inconsequential nonsense for the tabloids?  Often we wonder if the Hollywood media attended the same eastern colleges that produced the three fools named above.

This is the story.  Nothing new here.   Adults acting like undisciplined children – no limits; no responsibility; just live for today and the devil take tomorrow.

That’s the Stockton story.