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California City Hit With $2 Million 'Parking Ticket'

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Stockton, californiaFaced with the prospect of becoming the biggest municipal bankruptcy in U.S. history, in February, the city of Stockton, Calif., decided on a novel gambit. To avoid going "bankrupt," they'd simply stop paying some of their bills, leaving more money to pay their other bills.

Specifically, Stockton's City Council decided to skip a $779,935 payment to Wells Fargo (WFC), owed as an installment on $32.8 million worth of bonds issued to finance the construction of two downtown parking garages. So problem solved, right? No?

Oh, well. It was worth a try.

Hey! Who Stuck This Boot on My Parking Garage?

There was just one problem with Stockton's plan. The garages themselves, and the income generated from them, secured the city's duty to make payment on the bonds.

So when Stockton reneged on its obligation to pay, Wells Fargo took 'em to court... and won. The Superior Court of San Joaquin County ruled last week that Wells Fargo could repossess the garages and attach the parking revenues as payment on the bonds.

In essence, Wells Fargo issued Stockton a parking ticket, and booted its garages pending payment.

Needless to say, Stockton's not thrilled with this result, and says foreclosing on the garages is not a "permissible remedy" under California law. And yet it just happened, and a California judge OK'd it.

What It Means to You
It's tempting to dismiss all this with a simple "Serves them right, those crazy, spendthrift Californians." But if you're a resident of a U.S. town or city -- and according to the government, 82% of us live in urban areas -- then Stockton's misfortune holds a lesson for all of us:

Debts, once incurred, must be repaid. And bankers will insist on getting paid.

Stockton got itself in this mess through massive spending during the housing boom, on everything from baseball stadiums to parking garages to overgenerous pension benefits for public employees. But Stockton's not alone. Just in California, the 24 biggest municipal pension plans are underfunded by a collective $136 billion -- half the level they need to be to pay on the promises they've made. Attempts to rob Peter to pay Paul (or rob Wells Fargo to pay Paul the retired policeman) are going to cause increasing amounts of pain in the months and years to come.

Stockton's impending bankruptcy may become the biggest in U.S. history. It won't be the last.

Motley Fool contributor Rich Smith does not own shares of any companies named above, but The Motley Fool owns shares of and has created a covered strangle position in Wells Fargo, and Motley Fool newsletter services have recommended buying shares of Wells Fargo.




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Lynn

So what happens to someone who owns a home in stockton if the city goes bankrupt?

April 19 2012 at 6:19 PM Report abuse rate up rate down Reply
adika3z

pay parking alot is so stupid system,
pay parking meter is the worse so stupid system way,
pay parking is NOT important, NOT need it, NOT worth it,
pay parking is a big crime and ripoff,
yes free parking is a much better and happy hour than pay

April 19 2012 at 3:48 AM Report abuse -3 rate up rate down Reply
Mel

Why does this feel like it was written by somebody from Wells Fargo reguardless of the disclaimer on the bottom. Freaking debt collectors...

April 19 2012 at 3:35 AM Report abuse rate up rate down Reply
taicoleman1

Maybe the City and County should give up the policy that allows high ranking officials to receive a payout for not using medical which counts as a salary increase that they receive the following year WITH the cost of living adjustment that cannot be taken away.

April 19 2012 at 1:30 AM Report abuse rate up rate down Reply
donaldpfau

Chalk up another Fail for CENTRAL PLANNING.
Government, no matter how large or small, cannot act without the consent of the people.
Vote.

April 18 2012 at 10:53 PM Report abuse rate up rate down Reply
David Hartman

Are you getting this you retard politicians & starry-eyed libtards that green-light this crap?!?!

April 18 2012 at 10:51 PM Report abuse +2 rate up rate down Reply
lnl80388

Pay up you loser dead beat left wing nut case democrats

April 18 2012 at 9:46 PM Report abuse +4 rate up rate down Reply
A

These are the politicians the majority of your voters wanted??? Well, the majority of you that voted for these politicians deserve this!!! The rest of you need to wake up and get active in local politics or move away from the losers who vote these losers into office!!!

April 18 2012 at 9:03 PM Report abuse +7 rate up rate down Reply
D.L

The city of Stockton should shut off the power to the structures and block entrance from the street. The utilities and streets don't belong to Fargo. While I do believe that Stockton should honor it's bills, anything you can do to screw over Wells Fargo is good thing.

April 18 2012 at 8:12 PM Report abuse -5 rate up rate down Reply
1 reply to D.L's comment
jmkjr72

well they can only shut the power off if they own the power company the mud in stockton only covers water and sewer so they cant shut the power off.

April 18 2012 at 9:40 PM Report abuse rate up rate down Reply
Randy

So why doesn't/cant the Soc. Sec. Adm. sue the Congress and EVERY program that used the SSA funds thru the yrs? That's $ that we paid/are STILL paying into a GOVERNMENT instituted tax fund on our wages to guarantee a retirement income that SHOULD be above canned cat food/reduced meds & care that is being forced down everyone's throat right now.

April 18 2012 at 8:04 PM Report abuse +4 rate up rate down Reply
1 reply to Randy's comment
dottencollision

social secuity is an income tax thats goes to general fund, it is not seperate. years and years ago, our elected officials saw how large the fund was and decided to borrow off the fund so they could balance the budget, well i ddnt take long for them to just say lets make it general fund that way we dont have to borrow it. now that all the people that put into it for so long want to get what is comming to them.

April 19 2012 at 10:36 AM Report abuse rate up rate down Reply