In California, the city of Stockton’s pending bankruptcy case may become the single largest such case in history. But that is not its only Guinness-worthy record of late. A recent court ruling amounts to the largest parking ticket ever served. And it reiterates a basic financial lesson for us all.
City skips bond payment
On Feb. 28, Stockton, Calif., facing the possibility of bankruptcy, decided to prioritize its spending and let some bills slide. That amounted to passing on paying $779,935 to Wells Fargo as part of its $32.8 million debt for bonds issued in 2004 to fund the building of three downtown parking structures. The bonds have a remaining balance of about $2 million.
Judge sides with bank
Wells Fargo, not surprisingly, took exception to this decision, especially because the garages were built long ago and have been steadily generating income for the city. It took Stockton to court and Judge Roger Ross agreed with the banking giant. Last week the Superior Court of San Joaquin County allowed Wells Fargo to repossess the garages and use the income to pay down the city’s obligation.
World’s largest parking ticket
As Rick Smith of The Motley Fool put it:
“In essence, Wells Fargo issued Stockton a parking ticket, and booted its garages pending payment.”
Stockton displeased with decision
The City of Stockton is not happy with the bank. One of the municipality’s lawyers, Thomas Keeling, said in the court papers:
“Wells Fargo Bank — itself a beneficiary of one of the largest taxpayer bailouts in history — has shown no interest in safeguarding the interests of the residents of Stockton.”
Stockton is a farming community less than 100 miles east of San Francisco. Like many communities during the housing boom, it over-extended itself by building more than it could afford in the long term: baseball stadiums, pension befits for municipal employees and, of course, parking structures.
A lesson for all consumers
According to Daily Finances, in California alone, the 24 largest municipal pension plans are underfunded by half, to a collective tune of $136 billion. But the lesson here is not just applicable to municipalities. It is one best heeded by the average consumer as well. It is the lesson that we as a nation — and perhaps the entire world — are slowly being taught by recent economic hardships. Mainly, don’t take on more debt than you can afford. And meet what obligations you do take on in a timely fashion. The consequences of not doing so weigh far more heavily than do the obligations themselves.