Not the first...and not the last...but currently the Largest
In California, cities like Stockton don't have the power to increase property taxes when property values drop(Remember CA Prop 13??... California Proposition 13 (1978) - Wikipedia, the free encyclopedia ), leaving them only one option to balance budgets: cutting labor costs. Over the past two years, the city has laid off 40% of its employees, 25% of its policemen, and 33% of its firefighters. Unfortunately, these layoffs have come at a high cost: Stockton currently has the nation's second-highest foreclosure rates, one of its highest violent crime rates, and a 20.1% unemployment rate -- more than double the national average. According to city officials, Stockton's public safety is at a "crisis level."
With no approval for a tax increase on the horizon, it doesn't look like these problems will go away any time soon. Bankruptcy -- Stockton's last hope -- will allow it to renegotiate many of its contracts and adjust its payment schedule for creditors. What it won't do is bring in more money, which the city desperately needs if it hopes to restore its municipal services.
San Bernardino Files For Bankruptcy, Becomes The Third California City To Do So
In late July, San Bernardino reported it had $56 million in indebtedness payable from its general fund, the main budget, including payments on a $50 million pension bond. There is an additional $195 million in unfunded pension obligations, $61 million in unfunded retiree healthcare, and $40 million of workers compensation, compensated absenses and general liabilities.
In the past two months, the cities of Stockton and Mammoth Lakes have also filed for Chapter 9 bankruptcy protection, a special bankruptcy provision for municipalities.
Stockton, which like San Bernardino has suffered from the housing crash that was particularly acute in southern California, filed for bankruptcy in June, becoming the largest U.S. city to do so.