Unions, pensions drove Stockton, California to bankruptcy

Published: Friday, June 29 2012 10:59 a.m. MDT

Pedestrians cross a street near the Bank of Stockton on Wednesday, June 27, 2012, in Stockton, Calif. When Stockton becomes the largest U.S. city ever to file for bankruptcy, it will strike a hard blow to residents, especially city employees and retirees whose health benefits and pensions helped drive the city toward insolvency.(AP Photo/Gosia Wozniacka)

Gosia Wozniacka, Associated Press

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STOCKTON, Calif. — California officials must now assign blame to Stockton’s bankruptcy as mandated by its state law.

But who is to blame?

According to one analyst, it was cumbersome pension promises and public union salaries that sent Stockton under, not the housing crash.

“Union pensions wrecked Stockton,” said Mike Shedlock, investment advisor at Sitka Pacific Capital, in his article at Business Insider. “The only way to escape the death-grip of inane pension promises is bankruptcy.”

Shedlock said the U.S. should expect to see more cities file for bankruptcy.

The investment adviser also offered some potential solutions other than bankruptcy, including halts on defined benefit pension plans and collective bargaining for public union workers.

Stockton plans to default on $10.2 million in debt and cut $11.2 million in employee pay and benefits. The cuts have led to high crime and unemployment rates.

“The city is fiscally insolvent and must seek Chapter 9 bankruptcy protection,” Stockton said in a statement to Bloomberg. “In addition to the bankruptcy petition, the city will file a motion with the courts to share information from the confidential mediation.”

EMAIL: jferguson@desnews.com TWITTER: @joeyferguson

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