Confessions of a Stockton Slumlord.

• Author: Greenhut, Steven
• Position: Bankruptcy of Stockton, California

Aside from routinely making Forbes magazine's "miserable cities" list, Stockton rarely grabs headlines. But the northern California city of nearly 300,000 has become a key test case on whether cities can reduce their unaffordable public pensions when they head into bankruptcy court.

During my early reporting on the Stockton bankruptcy proceedings, I was chatting with a city official and mentioned, as an aside, that I own a couple of rental houses in the heart of town. It was my way of conveying that I know the city and am vested in its long-term financial health despite living in a town 40 minutes away. "Oh, you're one of those out-of-town landlords," she said, in a tone that suggested what she really meant was slumlord.

I wish I had thought of a pithy comeback: Oh yeah, I'm that slumlord who restored a decrepit 1930s bungalow (I bought light fixtures at Restoration Hardware, for heaven's sake!), and now rent it to a lovely family. The slumlords in this picture are not the private investors shoring up old properties, but the city officials and other public workers who have degraded the local infrastructure.

Stockton is a historic treasure--a Gold Rush-era city on the edge of the Sacramento-San Joaquin Delta--that has been allowed to fall apart. The salaries and benefit packages of the city's work force are so generous that the city literally can't afford to pay its bills or do its job adequately.

Local officials are quick to blame the real estate crash. A 45-minute drive from the edge of the pricey, growth-controlled San Francisco Bay area, San Joaquin County drew many long-distance commuters in the boom times of the mid-20oos. Stockton and other nearby cities were left devastated when housing prices dropped by as much as 75 percent from the market's height.

But Stockton's bankruptcy revealed a more fundamental problem. Officials for years had spent money like drunken longshoremen who had wandered away from the city's impressive inland port. They sprung for grandiose downtown redevelopment projects (sports venues, a hotel, entertainment) and lavished public employees with pay packages clocking in at 125 percent of state averages, despite living in a comparatively low-priced town. City workers received what one City Council member called a Lamborghini-style health plan, and police and firefighters could take advantage of a "3 percent at 50" pension formula that allowed them to retire at age 50 with 90 percent or more of their final pay.

The...