* Farming hub became home to extreme commuters
* Housing collapse among worst in United States
* Downtown refurbishment, rich employee deals backfire
By Michelle Conlin and Jim Christie
NEW YORK/STOCKTON, Calif., March 19 For
decades, Stockton, California suffered a civic inferiority
complex. Los Angeles had celebrities and sunny beaches. San
Francisco was awash in tech futurism and post-pubescent
billionaires. Stockton was the polyester, buy-generic cousin, a
dingy commercial hub for Central Valley farms that was just far
enough from the San Francisco Bay area to be an irrelevance for
the state's coastal elites.
But then came the housing boom, and sorry Stockton
practically started to strut. Its loamy farmlands - among the
most fertile in the United States - gave way to shiny
subdivisions. Middle-class families, priced out of the Bay area
housing market, snapped up the new homes, happily trading
extreme commutes for the suburban niceties of four bedrooms and
Mayor Gary Podesto, a colorful character given to
slicked-back hair and Guys and Dolls suits, saw the sudden
influx of developer dollars and property taxes as the key to an
urban renaissance. He kicked it off with a plush downtown sports
arena complete with a Sheraton hotel, and a swank redevelopment
of the waterfront that transformed it into a showpiece to rival
San Antonio's Riverwalk.
Sushi joints started opening up. Reiki masters moved to
town. Stockton started to turn, well, Californian.
If only it could have lasted.
At the Feb. 28 city council meeting, which ran for more than
six hours, Mayor Ann Johnston started the proceedings by saying,
"Lord, please help us."
"Lord, we need your help."
Pending any divine intervention, Stockton would skip its
next bond payment and enter negotiations with its creditors. The
process could end with Stockton, population 292,000, becoming
the largest U.S. city ever to file for bankruptcy. It has a
little more than two months left to mediate with creditors.
Stockton is hardly alone in its suffering: across California
and much of the nation, municipalities are struggling with
plunging revenues, ill-advised labor agreements, soaring pension
and healthcare costs, and too much debt. Stockton faces a
deficit of as much as $38 million on its budget of $165 million,
and is in its third year of fiscal emergency. Its retiree
healthcare liabilities alone total more than $400 million.
But the crisis has been exacerbated by years of bad
management, critics say. The economics of the arena didn't work
out as promised and burdened the city with millions in debt.
Then there were what one city official called the "Lamborghini"
benefits for city workers: anyone who toiled for the city for as
little as one month was eligible for retiree healthcare - for
life. Their spouses got it, too.
Today, Stockton has 94 retirees with pensions of at least
$100,000 a year. That's double the number in other Californian
towns of similar size.
These luxe contracts with public-employee unions have proven
wholly unsustainable: the police force has been slashed by
almost a third, to 324 officers, and the city is pressing for
further concessions even as the police union sues to get back
what it has already lost.
Then there are the management gaffes that just keep coming:
Last year, city officials discovered that they had made $15
million worth of math errors, including double-counting $500,000
in revenues from parking fines.
The poor decisions have been tiny and mythic - and have
added up. During the boom, the city lured a celebrity chef to
town by giving him a treasured, historic building rent-free for
five years. Today it sits empty.
The city council also bought a new, high-rise municipal
headquarters building for itself - at the peak of the market -
for $35 million.
But that is all over now. With or without bankruptcy, the
fiscal crisis has destroyed Stockton's dreams of glory and left
it with a grim litany of urban woes. Crime has skyrocketed, with
an all-time high of 58 murders last year, landing Stockton on
the FBI's top-ten list of most dangerous cities in the country.
Municipal services, from libraries to street lighting, have
been eviscerated. Unemployment stands at more than 16 percent,
compared to California's rate of 10.9 percent; when a new Krispy
Kreme advertised for jobs last year, 400 people lined up around
the block to apply.
The Stockton Shelter for the Homeless is now at 125 percent
capacity, according to executive director John R. Reynolds, with
15 percent "right out of the middle class", he says, meaning
they had owned a home.
Many of the new homeless are evicted families with children.
"It's hard to tell your kids you're going to live in a homeless
shelter," said Araiz Avalos, whose family got booted from their
rental apartment in January after their landlord was foreclosed.
HOUSING BUST, EXTREME EDITION
It's hard to overstate the depth of the housing crisis in
According to online foreclosure marketplace RealtyTrac Inc,
Stockton last year had the second-highest foreclosure rate of
all large U.S. metro areas, with 5.43 percent of all its housing
units receiving foreclosure filings. Las Vegas had the highest
rate: 7.38 percent, compared with a nationwide 1.45 percent.
Virtually new three-bedroom homes with cathedral ceilings,
fireplaces, skylights and roomy backyards can now be had for
little more than $100,000. House prices in Weston
Ranch, one of the signature new subdivisions of the Stockton
boom, have dropped from an average $450,000 in 2007 to around
The city has started passing out citations to residents,
many of them underwater and unemployed, threatening fees unless
they paint their yellowing lawns green.
Barbara Partyka, who was working in Silicon Valley as a
business systems analyst when she moved to Stockton in 2006,
never imagined it could end like this.
She put 20 percent down on a virtually brand-new home with
slate floors on a corner lot with a sprawling backyard and a
deck overlooking a lake. It was $400,000.
By 2007, she had a new job working as a business systems
analyst at Washington Mutual.
By that time, the Stockton city council was spending freely,
falling prey to the magical thinking of the moment: that this
boom was somehow different, and would never turn to bust.
By 2009, though, it had all gone south for Stockton, and for
Partyka. She was laid off by Washington Mutual - soon to be
defunct itself - and went back to work for her old employer.
Just a few months later, that job disappeared too.
"I sent out 80 resumes and I didn't hear one thing back,"
In less than two years, the value of her house had halved.
The rest of Stockton's housing stock tanked even more,
falling 75 percent from the peak. Soon the Repo Home Bus Tours
were rumbling through town. A developer bought the new downtown
Sheraton, for pennies on the dollar, and turned it into dorms
for students at the University of the Pacific.
Many residents are now fleeing, and leaving their houses
Partyka, 60, had no choice but to take a job in Minnesota.
But she was never able to work out anything with the bank to
help her get a better mortgage, nor would the bank approve
various short-sale offers. She's now in foreclosure.
Today, house prices in Stockton hover around levels seen
during Ronald Reagan's time as president.
In the now-sleepy downtown, merchants fret that talk of
bankruptcy will make a bad situation worse. "People come in here
crying," Yvette Loberg, who runs a bakery near City Hall, said
of city employees who spend money in the area. "It's crazy."
There is no end in sight. Celia Chen, an analyst with
credit-rating agency Moody's Investors Service, predicts the
housing market won't return to its 2006 levels until 2030.
Economist James R. Follain, in a study of the real-estate bust,
says it may never come back, comparing Stockton to "a ghost town
from the Old West, a town that lost its reason for being".
That might be an overstatement. But for now, what was once
the hottest job in town - real estate agent - is now arguably
one of the toughest. "It's hard," said Stockton property agent
Sheri Midgley, whose schoolteacher brother recently quit and
left town because of the cuts.
"For a while, everybody came. As soon as prices fell,
though, everybody went back home."
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(Reporting by Michelle Conlin in New York and Jim Christie in
Stockton; Editing by Jonathan Weber; Desking by Dale Hudson)