Confronting Our Debt Crisis

Government debt is a very real problem. It’s not just a problem on paper that we can dismiss in reality, pushing it off into the future over and over again. Sooner or later, we have to confront these debts — and bad news does not get better with age.

For many municipalities across this country, the day of reckoning is not far off; it’s today. One of those cities is Stockton, Calif., which last month became the largest city in United States history to declare bankruptcy.

Stockton Mayor Ann Johnston (AP Photo)

The problem? They had run huge deficits for years, and eventually the bill came due.

Stockton is not unique in its predicament. It was not the first city forced to declare bankruptcy over its finances, and it will not be the last. In fact, two more California cities have followed suit just in the past few weeks (Mammoth Lakes and San Bernadino).

I had the opportunity to interview Stockton Mayor Ann Johnston on my SiriusXM radio show last week, and I thought the mayor had some great things to say. She was upfront and honest about the city’s problems, and realistic about what needed to be done.

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She did not avoid taking accountability or look to shift blame. She acknowledged the problem, and then talked about what would be needed to fix it.

That’s the kind of leadership we need in America. If we don’t take responsibility for the situation we’re in, nothing will ever get fixed.

Assigning blame and fault has no place in leadership. A great leader doesn’t look for someone to blame; a great leader looks for solutions.

I want to share a few snippets of my conversation with Mayor Johnston, in hopes that it will inspire others to look at this problem that plagues states and cities across the country, and also to challenge our leaders to do better, to be more like Mayor Johnston.

I know these are not easy times for leadership, but leadership has to take ownership of the reality of the problems before we can start getting solutions. So tell me what you’ve done there in Stockton, and why you did it.

Mayor Johnston: As you know, we’ve been dealing with budget deficits for a number of years. I inherited a real mess when I came on in 2009. And having owned and operated my own business for 30-some years, and really looking at government and efficiency, I was appalled by what I found. The council that came in with me couldn’t believe the financial situation in which we found ourselves. It had been a couple decades of very healthy Cadillac retirement benefits, pensions, and salary increases that were no longer sustainable — or probably never were sustainable in the first place.

What does a Chapter 9 bankruptcy mean?

Mayor Johnston: For a city or municipality, it basically means that you go before a bankruptcy judge and you lay out what your debts are, and you make a request in terms of what you need your creditors to do to help resolve the situation and maybe give them some money on the debt that we owe them. It’s a court process where, just like other bankruptcies, you go through the pros and cons and you try to negotiate a settlement in the bankruptcy court. The difference is that in municipal bankruptcy, the judge is not able to tell the city how to run its day-to-day operations. We continue to be in charge of the police department and all of our other functions. So the city is continuing to do business.

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I hate that you’re having to go through this process, but it’s great that you’re negotiating with everybody. You’ve got people on the municipal bond side, the investors, the municipal employees, and you’re trying to work this out. By dealing with it now, you’re giving Stockton a chance to have a future.

Mayor Johnston: We know that there are a lot of cities watching us, because a lot of cities are in a similar position. They’ve got huge debt, and they don’t have the revenues coming in to pay that debt. They’re trying to figure out how they’re going to survive in this down economy. When you don’t have the revenues, you’ve got to figure something out. We hope that we can provide a good example of how to work through the process. The council and I have had to make probably the toughest decisions that have ever been made in the history of Stockton. Nobody wanted to do this — nobody wanted to have to file Chapter 9, but we all came to the conclusion after looking at the financials and studying all the possibilities and trying to figure out what we might do short of that, we had no choice. So the hope is through restructuring our finances, working through with all our employees and bondholders, we’ll come out better on the other end with a solid financial future that we can build on as the economy starts to come back.

Fran Tarkenton is the Founder and CEO of OneMoreCustomer.com, a web resource for Small Business Advocacy and Education. After his Hall of Fame football career, Fran had a successful career in television and then turned to business. He has founded and built more than 20 successful companies and now spends his time coaching aspiring entrepreneurs. Read more reports from Fran Tarkenton — Click Here Now.