STOCKTON, Calif. (AP) – The city of Stocktonin California's crop-abundant Central Valley has the second-highest foreclosure rate in the nation and one of the highest crime and unemployment rates. It was named America's most miserable city in a national magazine —twice.And now, officials saythis river port city of 290,000 is on the brink of insolvency and could become the nation's largest city to fall into Chapter 9 bankruptcyprotection.
The City Council was still debating the issue late Tuesday, and deciding whether to vote on a proposal to continue the city's fiscal emergency for a thirdyear and use a new California law to enter mediation withits creditors.
Stockton would be the first city to test the law, Assembly Bill506, which is less than two months old.It requires local government agenciesto undergo mediation or hold a public hearing and declare a fiscal emergency before filing for bankruptcy.
In 2008, Vallejo became the biggest California city to file for bankruptcy, and itemerged from bankruptcy last year.
In recent years, thousands of new homes mushroomed in Stockton, part of a housing boom in suburban development that attracted buyers from the Bay area and beyond.
But when the economy crashed andthe construction bubble burst, Stockton was battered by foreclosures and lost income from property taxes and other fees. Multi-yearlabor contracts with escalating costs added to the burden,forcing officials to make deep emergency cuts to the city payroll, including its police department.
"It's been so challenging. Since 2008, the whole market was essentially turned upside down," said Randy Thomas , a Stockton real estate broker with the Cornerstone Real Estate Group. "A lot of folks were losing their homes. A lot of people were getting evicted, and it's beentough on a lot of people."
City leaders say Stockton could soon be unable to pay its debts. The city has a$15 million deficit 7/8— $6.6 million from the last fiscal year and $8.7 million expected for the current fiscal year, according to documents.
Forecasts also show deficits ranging from$20 million to $38 million for the fiscal year 2012-2013 and increasing in subsequent years.
http://www.usatoday.com/news/nation/story/2012-02-29/stockton-california-bankruptcy/53296106/1
Stockton would not be the first city to filefor bankruptcy for having to many public union liabilities. Its a given that each side is going to point to the other and no one takes or even shares responsibility for this.
Forget about assigning blame, like a bad marriage that ends in divorce, Stockton now has the opportunity to move forward and get out of these same costly contracts.
Having watched so many cities across the country contract out municipal governments functions, in the end,Stockton will save big when they do this. Especially police costs.
Perhaps the larger lesson here is andrthat nothing goes boom forever. We seem to have thisillusions that things will always get better, the economy will always expand, that it will always get bigger and better, more and more revenues. Oftenthe opposite happens.
City managers and councils need to plan for these downturns by not giving away the store (City) and being good prudent stewards of the public trust. Many cities are hanging on by a thread and will announce there inability to pay their public pension obligations.

The smallest city in the nation's smallest state -- Central Falls, Rhode Island -- is bankrupt. The main reason is it can't afford the pensions for its retired city workers. How the city is digging out of its financial hole mayhave consequences for city pensions in other cash-strapped towns across the country.
For years, city officials promised robust union contracts and pensions without raising revenue to pay for them. Last August, the math caught up with them.Central Falls was broke, its pension fund short $46 million. It declared bankruptcy.
"My daughters grew up here, went to school here. It's all gone," said Mike Geoffroy, a retired firefighter.
He said he could not make the payments on his house after hispension was cut by$1,100 a month. The small apartment he now calls home is a shrine to better days and fond memories.
http://www.cbsnews.com/8301-18563_162-57395072/as-cities-go-broke-pensions-are-slashed/