Stockton, California Bankrupt? It's A Lie!

Last night the city council voted to file for Chapter 9 Bankruptcy.  There is just one problem - Stockton is not bankrupt. Looking at the latest audited financial statement (6-30-10) I found the following significant facts: The governmental funds had a net operating loss of$3,503,000 on $283,726,000 in revenue for FYE 6-30-10 - 1.25%. That is pretty benign stuff. The General Fund had a net operating loss of $5,058,000 on $177,784,000 in revenue.  $4,793,000 of the total loss was due to some "bean counter" bookkeeping entries. Since 2001, the governmental funds have grown at an internal rate of 2.37%.  That rate is respectable when compared with a 4% growth rate by the national economy and an inflation rate of 2.5% over the same period. In 2001, total revenue was $229,777,000. For 2010, revenue was $283,726,000. The General Fund had a unrestricted fund balance equal to 4.28% of annual revenue.  That is low, but workable. Sure revenue for 2010 is down from the peak of $360,201 in 2007.  Compare that with 2001 - a 57% increase in just six years. Does anyone really think that is the normal growth rate. Forget using the accrual balance sheet to make a case for going into the drink.  It is made with a bunch of large manufactured numbers for infrastructure and associated depreciation.  I have more confidence in Enron's balance sheet.  At least they had real depreciation schedules. The trail for Stockton's journey to bankruptcy was paved by Vallejo, which was not really bankrupt either.  That's right, Vallejo was not bankrupt in 2008.  They were just pissed off.  Vallejo needed a workout consultant, not bankruptcy lawyers.  The same is true today in Stockton. Bankruptcy has a lot of appeal.  A newspaper editor once said "Doctors bury their mistakes.  Newspapers print their mistakes."  With bankruptcy, a city gets to have their mistakes reincarnated, which can then be redacted. The City of Stockton has engaged Marc Levinson, Vallejo's bankruptcy attorney. Marc is a great guy and a good lawyer, with a line of b.s. comparable to Johnny Cochran or David Boies.  I sure hope the employees hire a worthy opponent. During the Vallejo bankruptcy proceeding, the employees used The Harvey Rose Firm as their financial experts.  Marc really sucker punched Roger Mialocq, the lead expert, who was playing it straight, as an expert should.  I would like to see a rematch between these two.  This time it would be like the Battle of Little Big Horn, with Roger and an army of consultants coming over the ridge, that ends with Goldilocks Levinson laying on the battlefield. In the end, I do not think the truth really matters.   Everyone is caught up in the depression mentality.  Damn the torpedoes, full speed ahead.  Those preaching conventional wisdom say Stockton and other California cities are bankrupt and they are not going to let the facts get in the way, because in their hearts they know they are right. It is funny that these same prophets do not find it strange that the city has not released its 2011 audit.  I did a little snooping around to see what I could find.  Holy Cow!  The 1% sales tax distribution from the state was up 3% for FYE 2011 and up 10% for the current year.  That looks like a depression me.  "Hey buddy, can you spare a dime." Once a family had an adult son who had some real mental problems - he thought he was a chicken.  When asked by a neighbor why they had not gotten help for their son, the father said they needed the eggs. The Tea Party needs the eggs.