The Stockton Forecast

Acuity with Jeff Michael

Back Q&A Apr 1, 2012 By Douglas Curley

Jeff Michael, 42, is the director of the Business Forecasting Center at the University of the Pacific. 

“It is clear that the city of Stockton is set up with an unsustainable budget with respect to its long-term obligations. Even as things start to improve and the economy begins to recover, there is really no way to make the budget work long term.”

“Stockton is the first city to go through the mediation process established last year by [Assembly Bill] 506. It’s a confidential mediation process during which alternatives other than bankruptcy are pursued. It is preferable for agreements to be reached through this process. In bankruptcy, a judge makes the final judgment that may force solutions that nobody wants nor can live up to.”

“It is imperative the city renegotiate its bond debts, employee contracts and retiree obligations. This is the third year in a row of fiscal emergency. Enormous city layoffs — as much as 25 percent — have occurred. Furloughs have been ongoing for several years. There have also been major reductions in public services. And yet, a balanced budget is still nowhere on the horizon.”

“There is no way to have a sustainable general fund without reducing the cost of fire and police services. Some of the city employee groups have renegotiated contract concessions. Some of the unions, including the police, have had reductions forced on them. The police union is now suing the city in court. The outcome of this lawsuit is really important because it represents such a large portion of the city budget; it’s half of the general fund.”

“Morale issues with city staff are very serious. It’s very difficult for an individual to adjust to wage and compensation package reductions. People rightfully believe they have a right to stick with an agreed upon contract. They are reluctant to give that up and instead fight for what they believe they are due. This has created very poor relationships between the city and its employees. It adversely affects the morale of the employees, and in turn, the morale of the city’s citizenry as a whole.”

“It’s important for businesses to have a municipal government that delivers services they can rely on. These services, such as public safety and roads, must be delivered in a quality and cost-effective manner. So the private sector is not happy to see large layoffs in police and fire. It’s not good for business when safety coverage is reduced and response times are increased.”

“When you’re looking to invest, you are always forward thinking. So what the private sector wants to see is a city that has a plan that can resolve some of these challenges going forward. In five to 10 years, they want to see a city that’s getting ahead of the curve and not sort of continuing to kick the can to the next year.”

“What has made Stockton worse off than other regional cities was its aggressive pursuit in borrowing for public projects. Because of that, the city was betting more than other cities on continued real estate-driven economic growth. Stockton was at a much higher risk. It needed this growth to roll over its bond obligations.”

“Ninety-five percent of our problem in Stockton was caused by the epic collapse in the real estate market. We experienced the biggest price bubble burst in the country. We’ve since hit the bottom hard. One thing going for the city is that residential isn’t grossly overbuilt. But for Stockton, real estate activity is not going to drive a recovery any time soon. Perhaps in 3 to 5 years we may begin to see some activity in this sector.”

“Stockton has had image problems for a long time. There is no doubt about that. But the reality of the city is better than the image portrayed in state and national media. So it’s important to get people here to see it and recognize that maybe this isn’t the most miserable place in the world. At the same time, those images and rankings do reflect some facts. The city has some very difficult issues to deal with. Until those issues are addressed and resolved, business and the private sector are in an unfavorable position compared with competitors elsewhere.”

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