Why Is San Bernardino Bankrupt?

The prize for the most abjectly wrong headline in American journalism this week goes, I grieve to say, to the Los Angeles Times. Atop an article analyzing how California cities are coping with horrific budget crunches—which ran one day after the working-class exurb of San Bernardino followed its fellow working-class exurb Stockton into municipal bankruptcy—the headline writer plunked the following line: “Rising costs push California cities to fiscal brink.”

The headline doesn’t really capture what the ensuing article is about, which is what city governments have done as they have approached or gone over that brink. Rather, the headline advances its very own theory of causality for why Stockton and San Bernardino got into trouble: rising costs, which feeds nicely into the rightwing narrative about municipal unions undermining fiscal viability. 

But that’s really not what caused the crises of Stockton and San Bernardino. Thousands of other American cities had contractual arrangements with the public employees, many of them far more generous than those of these proletarian burgs. What sets Stockton and San Bernardino apart is that they were at the epicenter of the California housing bubble and the California housing bust. Both cities experienced a wave of residential construction aimed at the most financially shaky homebuyers, who signed a disproportionate number of sub-prime mortgages. And when the bust came, both cities experienced a record number of foreclosures and a sharp dip in employment, since the main industry in both cities was home construction.

Of the 372 federally designated metropolitan areas in the United States, Stockton ranks first in foreclosures, while Riverside-San Bernardino-Ontario ranks third. The Bureau of Labor Statistics’ May breakdown of unemployment rates in the same 372 metro areas, with the area with lowest unemployment rate listed as number one, listed Stockton 364th and San Bernardino 354th. The unemployment rate in the city of Stockton proper in May stood at 17.5 percent; in San Bernardino, at 15.9 percent.

Both Stockton and San Bernardino depend on property and sales taxes for their revenues. With the value of their housing stock and the disposable income of their residents both in free-fall, the cities saw their revenues hemorrhage. That’s why they filed for bankruptcy—not because of rising costs. 

I should note that the head-up-your-ass headline ran on the Times’ web page; I don’t know if it ran in the print edition as well. Nonetheless, somebody took the trouble to write it, and, boy, did they get it wrong. 

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