First, outsized investment assumptions prior to 2000 seduced the city into thinking moderate investments would cover huge pension deals. More realistic return projections would have given earlier warning signals.
Then CalPERS jeopardized Stockton's contributions with high-risk portfolio strategies needed to justify such rosy predictions, putting Stockton's bond gamble in greater jeopardy. Thus, CCC calls out the "high-return, high-risk instruments that CalPERS favored in recent decades."
"The only innocent victims are the law-abiding citizens of Stockton," Michael said, calling the affair both "a financial and a social crisis."
The threat is real. Stockton's public safety has fallen over the past two years. Its homicide rate set a record in 2011 and is on track for for another new high in 2012. Stockton ranks 10th in the U.S. for violent crimes per capita.
Meanwhile, Michael said, "The sworn police staffing dropped from 1.52 per 1,000 residents in 2005 to 1.16 today" — the lowest ratio for any American city over 250,000 people.
Somehow Stockton has managed to cut its police force while increasing city payroll costs.
"Since debt service on all the city's bonds represents a small fraction of the city's general fund expenditures, even totally eliminating it will not solve the city's structural deficit," said said Robert Tucker, managing director of investor relations and communications for Assured Guaranty, which insured Stockton's bond.
Unless Stockton can escape the blind alley of excess employee benefits, Tucker argued, residents will continue to suffer reduced services even as they are bled today to pay for yesterday's profligate employee packages.
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