Municipal Bankruptcy Stalks Stockton

FEB. 27, 2012

By WAYNE LUSVARDI

Stockton, California’s 13th largest city, may be moving from “Fat City” to “Mudville.” Both were former historical names for Stockton.  “BK” is shorthand for bankruptcy.

On Feb. 23, Stockton City Manager Robert Deis asked the city council to suspend municipal bond payments, possibly on as much as $341 million of bonds.  If the City Council concurs with the recommendation, this will start a process under California’s new municipal bankruptcy law, AB 506.  This new law requires a confidential neutral evaluation of bankruptcy and alternative dispute resolution methods to delay and prevent bankruptcy.

Bond Rating Downgrade

Following the city manager’s announcement on Feb. 24, Moody’s Investor’s Service downgraded Stockton’s bonds as shown below:

Stockton Bond Downgrade

Type Bond FROM TO

 

Description
Issuer Rating Ba2 Baa1 Speculative, high credit risk
Pension Bonds and Lease Bonds Ba3 B1 Speculative, high credit risk
Water Enterprise Bonds A3 Aa3 Medium grade, low credit risk
Moody’s Long-Term Rating Definitions:
http://www.rbcpa.com/Moody%27s_ratings_and_definitions.pdf

Moody’s defines a B bond rating as a 35 percent chance of loss over a 20-year period.

The average person on the street probably wouldn’t understand a bond downgrade from Ba3 to B1.  But they probably would understand that their home value might drop below even what was being considered “the bottom.”

Home Price Could Fall Below ‘Bottom’

In April 2011, local real estate investor Cary Fopiano was quoted in USA Today: “Home prices are about as low as they can go” in Stockton.  Who could have guessed that, after Stockton home values fell an unbelievable 65 percent since 2006, they could be prone to fall further due to the possibility of bankruptcy?

The Zillow.com online home value tracking service indicates Stockton’s home value index dropped from about $335,000 in 2007 to $119,700 in December 2011. Home values have dropped about one third over all of California. But they have dropped by two thirds in Stockton.

Stockton Home Price Index Drop — Zillow.com

January 2007 December 2011 Percent Change
$335,000 $119,700 Minus 65 percent

If the Stockton City Council moves to file a bankruptcy action after the completion of the neutral bankruptcy study, then real estate brokers will have to start disclosing to prospective home buyers that the city was broke and could default on its bonds.

On October 21, 2011, the Wall Street Journal reported that Stockton was also struggling to continue to make payments on $87 million of redevelopment bonds issued in 2006.

Stockton had a reported operating budget deficit of $37 million, reflecting about 20 percent of its entire budget.  Police and fire department salaries were reported to be 82 percent of its budget.

But Stockton was once “Fat City” from the 1990’s to about 2006.

From ‘Mudville’ to ‘Fat City’

Stockton’s extensive network of surrounding waterways might have been the reason it was dubbed the name “Mudville” at one time.  But beginning in the 1990’s, it began downtown revitalization using redevelopment to buy and assemble land for public projects and re-zoning land for new housing projects.

The list of revitalization projects includes: Bob Hope Theater, Regal City Theatre Cinemas and IMAX, San Joaquin RTD Downtown Transit Center, Lexington Plaza Waterfront Hotel, Hotel Stockton, Stockton Arena, San Joaquin County Administration Building and Court House, Stockton minor league ballpark, Dean DeCarli Waterfront Square and Downtown Marina. As late as 2009, the city was considering the South Shore Housing Project, revamping the Robert J. Cabral Train Station neighborhood, erecting bridges across the Stockton Deep Water Channel and a new San Joaquin County Courthouse.

But those were the “fat years.”  Now Moody’s Analytics predicts home prices in the Stockton area won’t recover for another 20 years.  From “Fat City” back to “Mudville.”

‘No Joy in Mudville’

The Cultural Dictionary online defines the term “No Joy in Mudville” as a line from “Casey at the Bat,” a poem describing the reaction of the hometown crowd when their hero, Casey, struck out, losing the big game.  Stockton has been the biggest loser thus far at the game of public-sector real estate development in California.

9 comments

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  1. larry 62
    larry 62 27 February, 2012, 10:52

    If Sacramento builds the arena complex downtown, Stockton will have company in BK court very soon.

    Reply this comment
  2. Beelzebub
    Beelzebub 27 February, 2012, 11:52

    It’s really no surprise that Forbes listed Stockton as America’s ‘most miserable city’.

    Stockton is essentially a de-facto sanctuary city. Crime is rampant. I believe it’s the same city that declared grafitti to be a form of ‘art’. And when the word gets out that your city welcomes indigent illegal migrants it only makes sense that you would get more of them, right? Of the 267 American cities with populations over 100,000 Stockton was rated the 10th most dangerous city as measured by violent crime per capita. Oakland is the only California city that ranks higher.

    And it’s really no surprise that Stockton is America’s capital for foreclosures. Yep. #1 in the nation.

    See, when you give a $400,000 subprime loan to a poor person who picks fruit for a living – chances are damn good you’re going to get stiffed. The banks knew this. They’ve been in the loan business for centuries. They knew the difference between a good risk and a bad risk. But they knew that if the bet went bad that the taxpayer would be there to save them. And that’s exactly what happened. Mr. Bankster knew the government would have his back.

    And once Stockton declares bankruptcy and defaults on their muni bonds watch the Zillow price index break $100k forcing a rash of new foreclosures.

    You reap what you sow, Stockton.

    Reply this comment
  3. Rex The Wonder Dog!
    Rex The Wonder Dog! 27 February, 2012, 17:42

    See, when you give a $400,000 subprime loan to a poor person who picks fruit for a living – chances are damn good you’re going to get stiffed. The banks knew this. They’ve been in the loan business for centuries. They knew the difference between a good risk and a bad risk. But they knew that if the bet went bad that the taxpayer would be there to save them. And that’s exactly what happened. Mr. Bankster knew the government would have his back.

    I do not think they knew the gov was going to back stop the loans, but I DO KNOW that they had every intention of securitizing and then dumping these loans on the secondary market-after they rated them AAA quality.

    Big Business OWNS gov, and they are destroying our country-along with public unions. The ONLY people getting screwed over are the poor and middle class, and they are not part of the gov employment scam, those people are now on the top 1% for FF and cop, and the top 10% for everyone else.

    Did anyone see the DWP in LA salary schedule?? They are paying their auto mechanics $109K base salaries. Not counting benefits. PRKING LOT ATTENDANTS ARE GETTIGN $75k! It is like that for EVERY job at DWP in LA.

    http://www.latimes.com/news/opinion/opinionla/la-ed-ladwp-20120210,0,7115922.story

    Reply this comment
  4. Beelzebub
    Beelzebub 27 February, 2012, 19:13

    “I do not think they knew the gov was going to back stop the loans, but I DO KNOW that they had every intention of securitizing and then dumping these loans on the secondary market-after they rated them AAA quality”

    The only way they could’ve kept their scam going was by further RE value appreciation. Banksters are not stupid people. At the height of the market absolute dumps were going for $600,000 in OC. No one could convince me that these banksters were expecting for the average dump to rise to $800,000. They knew the market would crash – that’s why they shorted the securitized mortgage backed investments as soon as they sold them. If not for the gov bailouts all of the TBTF’s could have crashed and burned. The banksters knew that would not be allowed to happen. I think the banksters knew full well that they held a proverbial gun to the gov’s head. That’s why Hanky Panky Paulson (former Goldman CEO) warned everyone that unless the gov handed over $800B that there would be “tanks in the streets”. So I personally think these evil masterminds designed it to happen exactly the way it happened. Look how it turned out. The 1% actually got richer while the middle class
    got screwed. It was a huge transfer of wealth.

    “Did anyone see the DWP in LA salary schedule??”

    There will come a day when they’re going to have to decide whether to cut services or to cut these obscene gov salaries and pensions. If they cut services I think we’ll see 1992 all over again.

    Reply this comment
  5. Bob
    Bob 27 February, 2012, 20:38

    Just change the name of the state from Colliefornia to BK Mudville.

    Reply this comment
  6. Rex The Wonder Dog!
    Rex The Wonder Dog! 27 February, 2012, 21:47

    There will come a day when they’re going to have to decide whether to cut services or to cut these obscene gov salaries and pensions. If they cut services I think we’ll see 1992 all over again.

    That day is a long way off I think. No one is stepping up to stop these abuses. Come on, $75K salary for a friggin parking lot attendant. That is a scam, plain and simple. And who on this earth do you think gets a job like that???I GUARANTEE you it is the relative of the trough feeder hiring for the job.

    Reply this comment
  7. Bob
    Bob 28 February, 2012, 08:11

    So Mr. Bub, how are things going for you today in Southern Colliefornia? Any Ahnode sitings?

    There will come a day when they’re going to have to decide whether to cut services or to cut these obscene gov salaries and pensions. If they cut services I think we’ll see 1992 all over again.

    Cut both! I’m sick of being “serviced” by this criminal state.

    Reply this comment
  8. TheBeachBum
    TheBeachBum 28 February, 2012, 15:14

    City by City continues to fall into BK, while the public sector unions and the politicians who created this catastrophic failure claim the cause as elsewhere (wall street, banking, speculation, etc.). The truth is, California has the highest paid public sector workers in the nation, the highest overall taxes in the nation and one of the highest debt ratios in the nation. The problem is that the very same unions and politicians that put us here are still in charge, so it will never be addressed while the agenda of California’s union-controlled state politicians is to do whatever they can to increase the amount of tax revenue flowing into the government, and increase the amount of dues revenue flowing into the coffers of government worker unions. Those few of us still working and paying taxes haven’t a chance.

    Reply this comment
  9. Tough Love
    Tough Love 28 February, 2012, 17:28

    Quoting TheBeachBum …”Those few of us still working and paying taxes haven’t a chance.”

    Sure you do. Move (out of State), and leave CA to the indigent and to the Civil Servant workers.

    Think about it …. it’s called payback for their greed.

    Reply this comment

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