I just finished reading the City Manager's budget update as well as the consulting report. The City Manager is indeed proposing severe actions just to make it through the end of this fiscal year. It's awful, but I don't have a better plan to suggest. The most newsworthy of these actions is the plan to suspend payment on a few of its bonds.
The most significant missed payment will be on the $40m 2007 bond that financed what was seen at the time as one of the cities' shrewdest investments: the purchase of the Washington Mutual building to serve as a new city hall.
The Washington Mutual building was hailed as a bargain, much cheaper than building a new building, but today it sits mostly vacant and the city hasn't had free cash to pay for the move. In 2007, foreclosures were a new crisis and the residential market had just started a nosedive with the broader economy soon to follow, but tax revenues had not yet started to plummet.
Here is an excerpt from an old column from Mike Fitzgerald at the time of the 2007 deal for the vacant city hall upon which the city is about to default. This is not to pick on Mr. Fitzgerald or play Monday morning quarterback. His column is a window on the general sentiment at the time and is an interesting time capsule given the imminent default. This occurred around the time I came to Stockton to interview for a job, and I remember this story because I was just starting to read the local news and learn about the City, and I was also following the financial vultures circling an increasingly desperate Washingotn Mutual.
Stockton leaders hit home run
By Michael Fitzgerald
October 05, 2007
It seemed Stockton's current leaders, for all their talents, could not make the big play. But the purchase of Washington Mutual's building for a new City Hall - well, a soccer announcer would yell, "Goooooooaaaaaalllllll!"
The City Council this week approved the $35 million purchase of WaMu's classy eight-story office building, saying the old City Hall was cramped and leaky.
Leaders crowed the purchase is a bargain. Constructing a new building would have cost twice that much. At least.
I ran the deal past Mahala Burns, administrator and broker of Cort Cos., which deals in downtown real estate.
"It looks like a fabulous deal to me," Burns raved. "The parking is a huge asset, the location is fabulous, the building is in mint condition. We would expect a building like that to go for $48 million."
By way of comparison, San Joaquin County government, spending $109 million for its new administration building, gets 250,000 square feet and 38 parking spaces.
The city, spending $74 million less, gets 211,000 square feet and 518 (underground) parking spaces.
Looks like the county missed a bargain. Look for the blue light next time, guys.
Seriously, the benefits of the deal go beyond price.
Currently, City Hall stands on downtown's edge. The relocation surrounds it with banks and businesses, placing it in a true city center.
Though WaMu is selling, it intends to keep some workers in the building; the city, as landlord, is in a position to encourage this major employer to stay.
City jobs are not only higher-paying but more stable. The lending crisis may thin WaMu's ranks, but City Hall's staff will, if anything, grow as the city does.
Finally, departments such as the permit center and Parks and Recreation draw hundreds downtown. By one estimate, the building's foot traffic will double.