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STOCKTON, CALIFORNIA -- When 10,000 citizens of Stockton, California, sang along with Neil Diamond at the opening of their city’s shiny new concert hall it seemed like the good times would roll for ever.
It was 2006 and local officials were happy to pay the musician $1 million in taxpayers’ money to perform Sweet Caroline as they rode high on the back of a turbocharged housing market.
However, the concert has come to symbolise the financial irresponsibility that now has the city staring into an abyss.
Barring a last-minute reprieve, Stockton, which has a population of 300,000, will become the largest city in American history to file for bankruptcy on Tuesday. Its demise is perhaps the most extreme example of a nation’s boom-time spending splurge, and a cautionary tale of what happens when the bills finally have to be paid.
“I have nothing personal against Neil Diamond, but that was just a huge waste of money,” said Ann Johnston, the mayor charged with cleaning up Stockton’s financial mess. “It was a time of excess, of grandiose dreams and gross ambition. We’re like a homeowner who took out second and third mortgages and then everything crashed. We will be cash insolvent by the end of this month.”
Stockton, which sits in California’s agricultural Central Valley 80 miles from San Francisco, began life as a transport hub for the gold rush 160 years ago.
At the height of the economic boom, 3,000 homes a year were being built in the city and its population grew by 20 per cent in a decade as it sought to join the San Francisco commuter belt. In addition to its $80 million glass-fronted concert arena, a 5,000-seat ballpark also went up for the local minor league baseball team.
A $42 million superyacht, the Casino Royale, dominates the marina. It shimmers like a mirage in the California sun, while in its shadow a homeless man pushes a trolley.
During its glory days the city also paid $2-million to a Californian chef to open a bistro, which did not last long. It splashed out $35 million on an eight-storey building which was to be a city hall. Officials never moved in and it was repossessed by the bank a few weeks ago, along with three multi-storey car parks. Inside the current crumbling city hall, the tap water is undrinkable and there are rats.
Due to its massively inflated housing market and soaring debts, Stockton was hit like a freight train when the recession came after the 2007 sub-prime crisis. Its home foreclosure rate was the highest in America, property values dropped by up to 75 per cent and businesses went under. Unemployment is now at 19 per cent. The council’s revenues from property and sales taxes were decimated by the downturn. In addition, it had given away sumptuous benefits to city employees, including medical care for life for each public employee and their spouse.
The health care plan left them with an estimated liability of $417 million. Officials are in talks with creditors over $350 million the city owes bond-holders. Those talks end on Monday and, if they fail, bankruptcy will commence.
Mrs Johnston has already slashed public sector staffing and pay. The 425-strong police force has been cut by 25 per cent. The result has been a crime wave with a record 58 homicides last year. Gang members taunt the remaining officers, asking them when they will get laid off.
Kari Webb, a mother of two sons, lost her husband Alex Bell who was murdered amid declining police numbers.
Less than a mile from the marina, the morning queue at Stockton’s food bank starts 90 minutes before opening time. More than 400 people line up each day for a box of donated produce.
Waiting for one box is Denene Howland, 45. She bought a two-bedroom house in 2005 for $215,000 with her husband Ralph, a labourer. The house was foreclosed in 2009.
She said: “We couldn’t make the payments. When we lost it someone then bought it for $60,000. The realtors had just taken advantage of idiots like us.
“For a while it was like the gold rush back then, and then people were cutting each other’s throats..”
As the city awaits the bankruptcy verdict, Mrs Johnston said: “This recession keeps dragging on and we are still at the bottom. Neil Diamond will not be coming back.”
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