The Future of Stockton, CA Bankruptcy

stockton californiaIf you’ve been paying attention to the news lately, you’ve probably heard that Stockton, CA (population ~300,000) has filed for bankruptcy.  The city has had to default on its loans for a variety of reasons, from over-promising on city employees’ pension plans to bad budgeting.

However, the city faces a $26 million budget deficit, and it doesn’t seem to be going away on its own.

The Question Now…

Now, financial industry analysts are concerned that the Stockton, CA bankruptcy, might trigger a wave effect of many other cities and municipalities filing for bankruptcy.  Of course, Stockton wasn’t the first city to go under.  However, it is the biggest.

A Time Magazine interview brought this issue back to readers’ attention, in which financial industry analyst Meredith Whitney predicted 50 to 100 local governments filing for bankruptcy.  The interview was recorded in 2010, and other financial experts are now worried that Whitney’s prophesy may be coming true.

Despite the fact that the borrowing happens on a much smaller scale than it does at the federal level, bankruptcy is still a very real issue for many small-, mid-, and large-sized cities.  And, when it happens, it affects citizens and city employees in a heavy way.

Hopefully, Stockton, CA, will be able to regroup and recover after filing for bankruptcy.  After all, citizens’ safety, and many pension plans depend on it.  It’s important to remember that even for cities and municipalities bankruptcy can be a wonderful thing.  Sometimes it’s the only way to fix the major financial problems that individuals, businesses, and governments all face.

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