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Stockton City Manager Says Previous Accounting Mirrored A Ponzi Scheme

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(Stockton, CA)
Friday, February 24, 2012

The City of Stockton is not declaring bankruptcy, but it is in a serious financial crisis and City Manager, Bob Deis says previous city councils are to blame.  He says after previous accounting gimmicks were recently discovered, Stockton's real deficit for the year is at least $15 million dollars more than previously believed.  And, he says previous councils racked up at least $760 million in unfunded liabilities and debt.  

DEIS: "There was no money set aside to fund those commitments.  While that was a legal decision they made over 20 years, it was an unsound decision and it has similarities to a ponzi scheme."

Deis says things got so bad, the city started writing checks it simply couldn't cash including $12 million in redevelopment funds.

The city hired Deis in 2010.  He says the current council was instrumental in uncovering the hidden and deceptive financial gimmicks approved by previous councils.

One of the drains on the city's finances is a healthcare program for city employees. The plan pays every dollar of an employee's and spouse's care for life…with the only requirement being the employee serve one month on the job.  Deis says that's emblematic of the bigger problem.

DEIS: "In my 32 years of managing finances for various local governments, I have never heard of a situation like this. I have not seen a situation like this."

Deis expects the city council to vote Tuesday to ask a mediator to help iron out the city's finances and come to a resolution with creditors and unions. 

The city will stop payment on three bonds.  It will rely on bond insurance to pay bond holders at least until June 30th

Deis says the city will most likely not file any criminal charges against previous employees who oversaw the city's finances, but he says civil actions will be pursued. 

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