The audits, released Monday, say city officials failed to account for warning signs of a slipping economy in their spending and borrowing decisions. Few of the planned audits from the city auditor's office were carried out or addressed issues of substance, said state Controller John Chiang, California's top fiscal official.
"Stockton is not Bell—we found no evidence that corruption and self-dealing drove this city into insolvency," Chiang said in a statement, referring to the Los Angeles suburb whose municipal leaders looted millions of dollars from its treasury.
"Instead," Chiang wrote, "many of Stockton's problems can be tracked to poor decision-making that was not only ill-informed by weak accounting and fiscal management systems, but failed to heed downward-trending data that should have curbed spending and borrowing decisions."
Stockton, a city of 300,000 people about 80 miles east of San Francisco, declared bankruptcy in 2012 in the face of nearly $1 billion in debt. The city's financial woes came after years of excessive borrowing. The city also spent too much on salaries and benefits. Stockton was counting on long-term developer fees and increasing property tax revenue, but those funding sources were lost when the nation's housing bubble burst, leaving a flurry of foreclosures.
A judge accepted Stockton's bankruptcy declaration earlier this year. Before Detroit's bankruptcy declaration last month, Stockton was the largest city to declare bankruptcy in the history of the United States.
Chiang said many of the city's financial reports had discrepancies that called their reliability into question, and the City Council and leadership staff failed to properly manage contract awards. The city lost about $8.6 million in state and federal grants because of poor management, Chiang said.
In a letter, Stockton City Manager Bob Deis accused the controller's office of being more interested in restating old information and "scoring political points" than supporting good governance. Deis said city officials themselves reported to the controller accounting problems and the cumulative effect of poor financial decisions. He said city officials have made progress in improving internal controls that are not noted in the report.
"Through your restating of old and well-documented problems (two years or older), much of which was shared by us, and taking things out of context, your office appears to be just another political operative that 'bayonets the wounded' after the battle has been fought to repair a distressed city," Deis said.