The calendar may read June, but a budgetary winter is coming for the grasshoppers of Stockton, California. Stockon, required by law to provide a budget on July 1, now must turn to creditors hat in hand in order to help close a $26 million dollar deficit and avoid an expected bankruptcy. The city has already made painful cuts of
more than $90 million from its budget since 2009—including reducing its police department by 25%, cutting its fire department by 30% and slashing pay by as much as 22% for some workers.
The large cuts in personnel and pay could not solve one of Stockon’s biggest problems, generous benefits guaranteed in multiyear contracts signed with public sector unions during sunnier financial days. Stoctkon, faced with these crushing contractual obligations must now take additional painful steps on a road back towards a balanced budget.
To help close the budget gap, Stockton’s plan would suspend $10.2 million in debt payments, a move likely to trigger rating agencies to further downgrade the city, and reduce spending on employee compensation and retiree benefits by $11.2 million. About $7 million in savings would come from cutting retiree health care benefits for one year and then phasing them out. Stockton officials have said the benefits are a crushing expense due to their fast rise and projected liability of $417 million.
Stockon provides another example of “Blue Model” failure. Public officials negotiating with powerful, politically active unions signed restrictive, long term labor contracts which promised exorbitant benefits the city could not afford. Luckily, Ohio has not reached levels of Stockon-like misery, however cities across the state are grappling with tough financial choices of their own. It is important that cities in Ohio heed the lesson of Stoctkon before they too are left facing a budgetary winter with nothing but massive deficits and unfunded liabilities to public sector unions.