A 15-Year Spending Binge

How Stockton went broke: A 15-year spending binge

  • City manager: Retirees’ healthcare “a Ponzi scheme”
  • Police officers can retire at 50 years old with pension
  • No early signs of alarm about city’s fiscal mismanagement
  • Stockton’s fortunes linked to housing boom and bust

By Jim Christie

SAN FRANCISCO, July 4 (Reuters) – The man in charge of the biggest U.S. city ever to file for bankruptcy is clear about the root of the crisis.

It was a decision that gave firefighters full healthcare in retirement starting on Jan. 1, 1996, s aid Bob Deis, the city manager of Stockton, California.

At the time, the move seemed cheaper than giving pay raises s ought by unions, officials involved in the decision said. When other Stockton employees demanded the same healthcare deal in following years, the city agreed.

Deis, who signed Stockton’s bankruptcy filing last Thursday, s lammed the decision to provide free healthcare to retirees as a “Ponzi scheme” that eventually left the city with a whopping $417 million liability.

Before the turn of the millennium, things looked very different in California.

The U.S. stock market was booming, bolstering Stockton’s p ension funds. Real estate values were about to soar, too, bringing a flood of new tax revenue to the once quiet farming town of about 300,000 people – abo ut 85 miles east of San Fran c isco – in California’s Central Valley.

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