that's all the time we v. thank you for with -- for being with us. see you back here soon. >> what exactly is the fiscal situation? >> we are insolvent. >> it's happening from coast to coast. >> the city kept issuing debt. >> bankrupt cities. stockton is falling apart. >> it's a horrible thing to see. >> sinkholes of waste, corruption and crime. >> what words would you use to describe the financial situation? >> hopeless. >> hopeless? >> hopeless. >> who is to blame? >> these are all his ideas and the taxpayers trusted in him. >> whoville to pay? >> the salaries and benefits have to be renegotiated. >> you bet. >> why has that not happened yet? >> what's the fix? >> when you come together as a city, there is nothing we can't accomplish. >> fox news reporting, cities

going broke, reporting from wall street in new york city, here's bret baier. >> this hour, we are going to take you inside an alarming trend. cities that have slid deep into debt, even bankruptcy. new york's not on that list today, but for a number of other reasons, we begin our report from this spot, america's financial nerve center. the first reason is simple. some of the nation's most desperate cities are in trouble because of the millions they have borrowed from wall street. we saw that 171 miles from here in a city burr yid under decades of debt. harrisburg, pennsylvania, is the capitol of the keystone state. you would think it had been run by the keystone cops. what is the fiscal situation in harrisburg now? >> well, number 1, we are insolvent. >> dan miller is the harrisburg controller. >> my office is projecting a $15

$15 -- $15 million dev sympt we have $1.6 million. we have a health insurance bill that needs to be paid and the payroll is $1 million every two weeks. if we can make payroll and pay that bill, we have no money. it's very bleak. >> bleak, that about captures it. harrisburg is deep in hough to wall street and can't make the payments on billions of dollars -- millions of dollars of bonds. harrisburg don't have a credit rating. >> people are not moving in. businesses don't want to locate here. >> how did it come to this? the story begins in november, 1981, when voters elected steven reid mayor. he remained in office 28 years, a tenure marked by a public building boom, financed by a series of big debt deals with wall street. the first n1986. -- in 1986.

harrisburg borrowed $390 million to build a dam on the susquehanna river. regulators blocked the dam, so harrisburg paid that moan back. but reid moved ahead with the waterfront project, part of his vision to turn harrisburg into a national tourist destination that included a new $1.6 million baseball stadium to lure a minor-leek team to town. when the senators threatened to jump to another city, harrisburg issued bonds to buy the team. the price tag? $6.7 million. then, there was reid's attempt at a wild west museum. he spent some $8 million over 16 years on artifacts from six shooters, to doc holiday's sword cane. much of the collection is in this warehouse. the museum never opened. harrisburg's national civil war museum did open inuent 01 at a

cost of more than $30 million. >> have you all of that together in one town, wow! you are a nationally-scaled, national-class tourism attraction. >> these were all of his ideas. they were not vetted to the public or town hall meetings. >> the current mayor was on the city council from 2002 to 2010. >> he just felt like this was what he needed to do to create critical scmases bring tourism to the city. these were his explanations when he was challengerred. >> but the challenges didn't come until the finances collapsed on the most expensive folly. this incinerator was the biggest problem. it never really worked and it has burned up hundreds of millions of dollars and some people call this the incinerator from hell. built in 1972, before reid took office, the plant was supposed to generate profit, charging fees to burn garbage.

it didn't work out that way. mechanical problems shut it down, so did the epa -- multiple times. >> the city had to make decisions to incur more debt and get it running or sell it and get rid of it. the city kept issuing debt. >> an attorney, a municipal bonds specialist was hired as receiver to clean the harrisburg mess. e >> in 2003, there was $100 million debt outstanding. within four years, there was $326 million. on an incinerator that could carry $100 million, if it was operating properly. >> that debt crippled harrisburg, which the attorney says scrambled for cash, wherever it could find t. for example, he says, to make extra money, the city started overcharging sewer cufert mers for administration costs, twhiel let century-old pipes collapse. >> so it is not unusual in harrisburg to have huge sinkholes appear, directly

related, when you trace through the money, to incurring the debt for the incinerator. >> the mayor used noney from the incinerator bonds for other projects -- how was he able to do that? >> moving money around in different funds. i can't tell you what mon he moved where, other than he d. so, for example, if you want to do something, like start a museum, rather than going to city council and putting $500,000 in the budget, you issue bonds for an incinerator, and you take a portion of that bond issue to get money for a purpose that he may not be able to get approved if he goes through the normal budgeting process. >> that doesn't seem legal. is it? >> i don't know. it certainly is questionable. >> as a member of city council, you volted for the incinerator debt? >> yes, i did. >> was that a bad idea? >> as it was sold to us, no. we were told it would be able to pay for itself. >> you regret it now? >> i regret that we relied on

our consultant. >> one thing the city council did do was stop reid from using any money from that incinerator bond issue to pay for other projects. >> no authority fees, funds, funding or income shall be applied to purchase artifacts or to benefit any city museum or related project. [cheers and applause] >> the situation had gone from fishal tragedy to farce. while the council scuttled reid's plan for a $30-plus million sports hall of fame, they did go looping with a facelift to the ballpark to send taxpayers deepener debt. harpisburg sold the senators at a $7 million profit, but turned around and borrowed $18 million for stadium upgrades. >> do you take some of the blame here? >> my responsibility started

back then. i began to sound the alarm about this leadership and the final responsibility, i ran against him and unseated him. >> a private citizen, reid didn't respond to our multiple interview requests over several weeks via phone and email. so we dropped by his house. and the building where he has an office. >> he is not in the office. >> within hours, reid contacted us by email. he claimed his various tourism initiatives boosted harrisburg's economy and that he did nothing wrong to pay for them. as for the incinerator, he noted, quote, it was approved by all governing bodies. he also wrote he had a workable plan to wipe out the incinerator debt but that, quote, city council stopped the process dead in its tracks. he turned down our request to speak with him on camera. >> he won't talk to us. >> was he a bad guy? >> likeable.

very smart man. the taxpayers trusted in him. >> he left them with a mess. the question now, how to deal with it. the state-appointed receiver put together his plan to pay back the debt by, among other thing, raising harrisburg's earned income dispax leasing out some of its parking garok rages. >> the mayor got behind that plan. controller dan millert and city council however, don't think harrisburg residents should be the only ones making concessions at this point. they want a bankruptcy court to sort it all out. what do you say to the people who say, that's a copout? >> the reality is, you can only get so much blood from a turnip. >> but this man doesn't want to hear tthe ceo of assured guarantee, which has insured the harrisburg bonds. that means assuredville to pay off the investors to the extent harrisburg fails to. is your view on the bond deal, even if the project goes kaput

that the government is still on the line to pay who's due? >> they make us an absolute promise to pay. full faith and credit is the term that is typically used. >> so they are on the line for it. >> if you give me your full faith and credit, are you on the line? >> of course. >> okay. >> last october, the council filed for bankruptcy, but the petition was rejected because thompson, the mayor, refused to sign t. now miller is running against her in next year's primary. the attorney is done tending to harrisburg, resigning in frustration. >> we are at a point where you could not kick the can down the road, it's so broken that you need to deal with the problem. >> now. >> now. yes. >> up next, the battle over pensions and benefits. fox business network's lou dobbs with that story, after the break. [ mrs. hutchison ] friday night has always been all fun and games

here at the hutchison household. but one dark stormy evening... she needed a good meal and a good family. so we gave her purina cat chow complete. it's the best because it has something for all of our cats! and after a couple of weeks she was part of the family.

we're so lucky that lucy picked us. [ female announcer ] urina cat chow complete. and for a delicious way to help maintain a healthy weight, try new purina cat chow healthy weight. [ woman ] welcome to learning spanish in the car. you've got to be kidding me. this is good. vamanos. vamanos. vamanos. gracias. gracias. gracias. ♪ trece horas en el carro sin parar y no traes musica. mira entra y comprame unas papitas. [ male announcer ] get up to 795 miles per tank in the 2013 passat tdi clean diesel. that's the power of german engineering. see your local dealer for special lease and finance rates during the autobahn for all event. see your local dealer for special lease and finance rates and every day since, two years ago, the people of bp made a commitment to the gulf. we've worked hard to keep it. bp has paid over twenty-three billion dollars to help people and businesses who were affected, and to cover cleanup costs. today, the beaches and gulf are open for everyone to enjoy --

and many areas are reporting their best tourism seasons in years. we've shared what we've learned with governments and across the industry so we can all produce energy more safely. i want you to know, there's another commitment bp takes just as seriously: our commitment to america. bp supports nearly two-hundred-fifty thousand jobs in communities across the country. we hired three thousand people just last year. bp invests more in america than in any other country. in fact, over the last five years, no other energy company has invested more in the us than bp. we're working to fuel america for generations to come. today, our commitment to the gulf, and to america, has never been stronger.

welcome back. as you havbi >> cities with big dreams dreamd big bills have come here to wall street for the cash to finance them. but even more towns are going broke, not by issuing bonds, but by issuing promises to public employee unions. that story has a new york angle, too. fox business new york's lou dobbs explains. >> but it's a good-natured sort of labor battle. it was in 1935 that president franklin roosevelt made it easier for workers in the private sector to create unions. and when he signed the wagoner act, he cemented and deepened political ties between organized labor and the democratic party. >> but it doesn't cool enthusiasm for picketing. >> fdr didn't think public-sector unions made any sense. >> collective bargaining is different for public workers because their boss is really on their side.

>> nicole writes extensively on the roots of america's economic problems. >> it is not like you are the boss of ford -- they don't want to pay the union members too much because it comes out of their own pockets. that's not true with government. >> furthermore, strikes by public employees like police, firefighters and teachers would be, quote, unthinkable and intolerable. but it was within a couple of decades that his democratic heirs decided the political up side of public-sector unions was worth the risk. the eureka moment happened here in new york city. in 1958, democratic mayor mayor robert wagoner whose u.s. senator father authored the wagoner act, granted municipal workers the right to bargain collectively. three years later, the public unions organized to re-elect him. wagoner's unexpectedly strong showing caught attention of

another democrat, worried about re-election. president john f. kennedy. >> president kennedy sees how this carried wagoner to victory and he issues an executive order allowing the unionization of federal employees. state and local governments picked this up as a cue and you have the rapid growth of public-sector unions across the country. >> the story of fred segall of the manhattan institute says the new unions almost invariably work to elect democrats. >> the unions get pay increases, pension increase, health care increases am and the union takes some of the money it gets from the city and invests in local elections. so it tends to elect people who will give the union what is it wants. >> and haybecame a political force unto themselves. >> it can't act without their cooperation. >> that's because when elected officials didn't cooperate, the public sector unions that fdr

warned about declared those unthinkable strikes. the most memorable case, the summer of 1975 when new york was close to bankruptcy. sanitation workers let garbage pile up in the streets and laid-off police marched and shut down the brooklyn bridge. public employee unions demonstrated their clout national whethey helped senator ted kennedy mount a surprisingly strong primary challenge to a sitting democratic president they didn't like. jimmy carter. >> the public sector unions become the get-out-the-vote machine of the old democratic party machine. >> carter was renominated but he lost to ronald reagan who had the support of at least one public sector union, the air traffic controllers. that wouldn't last. months later, the controllers rejected a government contract offer and wont strike. but that was not allowed under

federal law. and president reagan fired them all. >> we cannot compare labor management relations in the private sector with government. government has to provide without interruption, the protective services which are government's reason for being. >> so it is notprising public unions ally with democrats as the providence rhode island fire union president paul dowdy. >> the republican party believes in a smaller government. as a government worker, i don't necessarily agree with that. >> by the 2008 election, a former community organizer with long ties to one of the largest government employee unions of all... >> >> working with seiu. >> was setting the stage for an epiem battle of these organizations and their clout. a financial crisis would catapult their man to the white house. but it would also bring those

dire warnings about public sector unions from fdr's era -- >> union! >> back into focus. one other thing. in 2009, public employee unions actually eclipsed the membership of private sector unions. >> lou, thanks a lot. see you later. >> up next, i go across the country to one of those union towns that just filed for bankruptcy. exclusive to the mi, and commitment is not limited to one's military oath. the same set of values that drive our nation's military are the ones we used to build usaa bank. with our award winning apps that allow you to transfer funds, pay bills or manage your finances anywhere, anytime. so that wherever your duty takes you, usaa bank goes with you. visit us online to learn what makes our bank so different.

it's the only way to get fresh coffee. not in my house! this new flavor lock pack from maxwell house helps seal in freshness. wow! that is fresh! am i still yelling? [ male announcer ] maxwell house flavor lock. always good to the last drop. introducing share everything. unlimited talk. unlimited text. tap into a single pool of shareable data and add up to 10 different devices, including smartphones and tablets. the first plan of its kind. share everything. only from verizon. get $100 off select motorola 4g lte smartphones like the droid razr.

>> you have heard why many fear public sector unions could bankrupt cities and states. it's happening right now in california. let's take a trip down route 66.

on old route 66, san bernardino was known as the last stop before l.a. >> moscow, san bernardino.... with three freeways and a major railroad station, it was the ideal hub, linking the ports of los angeles and long beach to the rest of the country with the promise of economic growth for middle-class america. it was the location of the first mcdonald's. but today, this city of around 210,000 has a shortfall of $46 million. over a quarter of its entire budget. unable to find the cuts to close the gap, san bernardino, on august 1, filed for bankruptcy. >> you have called this a stain on the city. >> oh, yes. >> patrick morris, a democrat, has has been the mayor since 2006. >> how did san bernardino get into this predicament? >> it was a perfect storm economically. when it hit in 2006 and '7, the

bottom fell out. >> in that perfect storm, morris says that san bernardino property values dropped 65%. seven car dealerships shuttered and the city lost tens of millions in sales -- real estate and income tax reach the receipts. >> we doubt have a lot of long-term debt, but we have major cash-flow issues. >> he names a great recession. every city in california has been through the great recession. >> mike morel represents portions of san bernardino, he rejects the perfect storm analogy to the extent that it suggests a series of unexpected factors came together to devastate the city. >> they have had 5 years of warning that this train was coming down the track. >> that's morel's preferred metaphor -- a freight train, fueled by public employee salaries and benefits. it hit town right on schedule.

>> in san bernardino, approximately 75% of the budget goes towards fire and police officers. they are not going to be able to pay those pensions. nor are they going to be able to pay the salaries they have been paying. >> we have historically in this city, been remarkably generous with our labor contracts. >> generous, indeed. in 2010, a san bernardino police sergeant made $317,000. in a city where the average household income is less than $40,000. but it is not just the top salaries that brought down san bernardino. it's the average ones. >> san bernardino firefighters are making about $130,000 a year. police, around $95,000, with pretty generous pensions as well. >> did anybody say, hey, you know what? we are not going to be able to afford this down the road? >> those are very problematic agreements that were made at a

time when life looked rosy. but morris admits, it's been in good times and bad that san bernardino's public unions have had a powerful influence over the politicians. politicians they help elect. morris says, that's just the way it is. >> in a blue-collar city, as old as we are, unions have the presence in terms of funding for candidates for city council and they're present at the table in the labor negotiations. >> those negotiations, in some cases, have bound san bernardino to pay employees just as much, even aft they retire. >> that's not going to work. that's not going to work. you cannot retire people at the age of 50 years, with literally full pay and bridge their health benefits until medicare. >> the salaries and benefits, you are saying, have to be renegotiated. >> you bet. >> why has that not happened yet? >> it will happen under the guidance of chapter 9.

>> in other words, bankruptcy court. but public sector unions are saying, not so fast. they point to state precedence that say their pensions are unochable. but morris, a former judge, believes in this unprecedented crisis, the courts will allow cities to modify at least some of their contracts. meanwhile, he's dealing with the day-to-day trials of a city gone belly up. >> you don't have credit. you are paying cash? >> cash and carry. >> you have vendor who is have leased equipment, who may try to take that equipment back? >> yes. that's a daily thing? >> we deal with it daily. >> bankruptcy. in the short term is the easier thing to do, but the long term, you affect lending conditions, housing conditions and jobs. >> and that, morel says, will make things worse for the beleaguered citizens of san

bernardino. >> were there other options? >> there are always options. the city could have balanced the budget with the massive cut of services. when you are looking at a city that already cut 20% of its staff, that's a really difficult choice to make. >> san bernardino's modernistic, dark-glass city hall, completed in 1972, was once a sign this town was looking to the future. today, however, the last stop on route 66 may be on its last legs. coming up, the biggest local government bankruptcy in u.s. history. and it is not in california. after the break. ♪ why not make lunch more than just lunch? with two times the points on dining in restaurants,

you may find yourself asking why not, a lot. chase sapphire preferred. there's more to enjoy. [ engine revs, tires squeal ] [ male announcer ] more power. more style. more technology. less doors. the 2012 c-coupe. join mercedes-benz usa on facebook for the best summer sweepstakes. you know, ronny...nz usa on facebook

folks who save hundreds of dollars by switching to geico sure are happy. and how happy are they jimmy? i'd say happier than a bodybuilder directing traffic. he does look happy. get happy. get geico. fifteen minutes could save you fifteen percent or more on car insurance. a body at rest tends to stay at rest... while a body in motion tends to stay in motion. staying active can actually ease arthritis sympto. but if you have arthritis, staying active can be difficult. prescription celebrex can help relieve arthritis pain so your body can stay in motion. because just one 200mg celebrex a day can provide 24 hour relief for many with arthritis pain and inflammation. plus, in clinical studies, celebrex is proven to improve daily physical function so moving is easier. celebrex can be taken with or without food. and it's not a narcotic. you and your doctor should balance the benets with theisks. all prescription nsaids, like celebrex, ibuprofen, naproxen, and meloxicam have the same cardiovascular warning. they all may increase the chance of heart attack or stroke, which can lead to death.

this chance increases if you have heart disease risk factors suh as high blood pressure or when nsaids are taken for long periods. nsaids, including celebrex, increase the chance of serious skin or allergic reactions or stomach a intestine problems, such as bleeding and cers, which can occur without warning and may cause death. patients also taking aspirin and the eldey are at incrsed risk for stoch bleeding and ulcers. do not take celebrex if you've had an asthma attack, hives, or other allergies to aspirin, nsaids or sulfonamides. get help rightway if you have swelng of the face or throat, or trouble breathing. tell your doctor your medical history and find an arthritis treatment for you. visit celebrex.com and ask your doctor about celebrex. for a body in motion. >> from america's news headquarters, i'm marianne rafferty. apple takes a bite out of samsung in a legal vehicle, ordering samsung to pay more than a million in damages for

ripping off the technology of iphones and ipads. apple filed the lawsuit last year, demanning $2.5 billion from the top s.m.a.r.t. phone competitor. an appeal is expected. tropical storm isaac building up strength in the gulf of mexico. the storm is closing in on haiti, packing high winds and heavy rains. it is expected to make landfall there tonight. forecasters say isaac likely won't reach hurricane level for a couple of days. they are return warning it could hit florida as the republican national convention kicks off in tampa. i'm marianne rafferty, now back to fox news reporting, cities going broke. now, the biggest local government bankruptcy of all. $4 billion. it took some doing. greed, income p incompetentencd

ol >> bank run to the tune of 4 billion. >> what words would you use to describe the financial situation in jefferson county? >> hopeless. at this junk fuhr. >> hopeless? >> hopeless. >> jimmy stevens is jefferson county's district three commissioner. he was elected after the crisis began. >> how did it stop to go after the rails? >> they attempted to build a cadillac when a chevrolet would have worked as well. >> this is not a tale about cars but sewers and the sort of mess that seens to the surface when local politicians with big ideas get mixed up with wall street bankers looking for big fees. a financial sinkhole in a swamp of corruption. it begins back in 1996. jefferson's sewer system was

leaking raw sewage into rivers and streams and the county signed a federal consent decree to fix the problem. the costs huge, estimated at between $250 million and about a billion dollars. >> where did the county get the money to undertake such a massive project like this? >> if went to investment bankers, went to the bond market and made their pitch and it was underwritten and sold as a good investment. >> at this facility alone the county spent more than $200 million on improvements and repairs earning jefferson county the nickname of having the taj mahal of sewer systems. >> i think in a lot of ways this facility is emblematic of the problems the system has. >> david denar has been in charge of running the jefferson county sewer system since 2008. >> the building we are in now what does it do? >> this is a peak flow pump station. >> it was built in 2004. soon thereafter problems began. >> we had to spend $35 million

in repairs. >> what did the building cost originally. >> 50 million. >> and had to spend $30 million to repear it? >> to put it in regular operating condition, yeah. >> when did go wrong there? >> the people did not operate on a budget and used local engineers to manage a problem that required a lot more expertise than was here. >> some of the sewers green lighted were not even included in the consent decree. how did that happen? >> jefferson county won'ted to bore are a super sewer underneath to get to area that would be developed. when they got to the point the outcry from environmental or rate payer groups was so loud they killed the project outright, leaving jefferson county with the tunnel to no where. when it became clear the county wouldn't be able to make the payments on its bonds officials went back to wall street looking to refinance.

>> original debt service represented $2.4 billion. 98% of that was fixed debt and investment bankers said we can go to a variable rate interest and add derivatives to that to synthetically make that lower. >> the new instruments that wall street had generated were so complicated that the average person even the finance person could not understand it. >> tony patellas is the jefferson county manager. he said those instruments exploded jefferson county's debt without any one realizing. >> it we were overextended by 85% and the folks that insured our bonds should have known better. >> when the market crashed in 2008 jefferson's bonds dropped to junk, allowing lenders to demand payment in full. >> they called everything in and we were unable to pay. today, jefferson county is debt over $4 billion. we are in bankruptcy.

the largest bankruptcy in the history of a local government in the united states. >> did wall street really take jefferson county for a ride here? >> i leave they did. >> a federal criminal investigation of the sewer deal found that was the case. but wall street got a number of help from a number of people with their hands out. >> we had 21 people that either plead guilty or went to prison. commissioners, employees and contractors. >> that included former commissioner and birmingham mayor larry langford. sentenced to 15 years for accepting thousands of dollars in cash and gifts from one of the bankers. former commissioner gary white. ten years for accepting bribes from an engineering company that worked on the sewer lines. mary buckaloo probangs after lying to the grand jury. chris mcnair serving five years for bribery and conspiracy to solicit bonds. bond underwriter jp morgan settled with the sec, paying

the county $25 million and the sec and a. the bank alleged to have bribed friends of jefferson county commissioners. >> there was definitely malfeasance in the whole use of the swaps et cetera. >> but the president and ceo of assured guarantee which reinsured. so sewer bonds says the sins of wall street and corrupt politicians shouldn't let jefferson county off the hook. >> i didn't vote for that project, they did. >> what really steams federico is that they killed a deal that would have avoided bankruptcy. bond holders offered to forgive a billion dollars of the sewer debt if state lawmakers allowed the county to raise taxes to pay the rest. now, assured guarantee has to pay up. we should work together. >> at a certain point when you

can't meet your financial obligations and the settlement that we had was getting farther he away instead of closer to us we had no choice. >> is it a cautionary tale for other counties across the country? >> absolutely is. you have got to live within your means. >> welcome back. lou dobbs from the fox business network. the president of assured guarantee said his company was going to be able to be fine even in the current environment. if there was a lot of defaults would it be like a domino effect in a a worst case scenario? >> if it reached co con tagion levels that would be a l calamity. >> how bad could a municipal bankruptcy be for the people who live there? who live there? worse than you c [ pilot ] now when you build an aircraft,

you want to make sure it goes up and stays up. [ chirp ] with android apps, you get better quality control. so our test flights are less stressful. i've got a lot of paperwork, and time is everything here. that's why i upgraded to the new sprint direct connect. [ chirp ] and the fastest push-to-talk nationwide. [ male announcer ] upgrade to the new "done." [ chirp ] with access to the fastest push to talk, three times the coverage, and android productivity apps. now when you buy one motorola admiral rugged smartphone, for ninety nine ninety nine, you'll get one free. visit a sprint store, or call eight five five, eight seven eight, four biz. but with advair, i'm breathing better.

so now i can be in the scene. advair is clinically proven to help significantly improve lung function. unlike most copd medications, advair contains both an anti-inflammatory and a long-acting bronchodilator working together to help improve your lung function all day. advair won't replace fast-acting inhalers for sudden symptoms and should not be used more than twice a day. people with copd taking advair may have a higher chance of pneumonia. advair may increase your risk of osteoporosis and some eye problems. tell your doctor if you have a heart condition or high blood pressure before taking advair. if you're still having difficulty breathing, ask your doctor if including advair could help improve your lung function. get your first full prescription free and save on refills at advaircopd.com. so, what's the problem? these are hot. we're shipping 'em everywhere. but we can't predict our shipping costs. dallas. detroit. different rates.

well with us, it's the same flat rate. same flat rate. boston. boise? same flat rate. alabama. alaska? with priority mail flat rate boxes from the postal service. if it fits, it ships anywhere in the country for a low flat rate. dude's good. dude's real good. dudes. priority mail flat rate boxes. starting at just $5.15. only from the postal service.

if your town had out of control debt could that truly affect your life? you wouldn't ask if you spent some time in stockton, california, like dan springer did. spend a night on the tough streets of stockton and you really sense the stakes for the city. >> do me a favor. just take your hands out of your pockets for me. >> and the people that live

here. pretty much life and death. >> if the officers disappear the gang bangers will be here in a heart beat. >> since 2010 the city has had to slash a quarter of its police force because they borrowed more than it can pay and promised more to unions than it can deliver. police can't respond to all 911 calls and that meant more crime. serious crime. >> we have seen a spike in the violent crime and in the homicides. >> stockton is falling apart. it is a horrible thing to see. >> fred siegel of the manhattan institute has written extensively about cities like stockton going broke. >> stockton is a city in the midst of terrible social breakdown. not justice cal collapse but social collapse and the two are intertwine. >> stockton in the middle of the fertile farmland of california's central valley. also an inland seaport

connected to san francisco bay. a navy base here anchored a bluent 20th century blew collar economy. but by the 1990s, the base and many of the factories were gone. stockton's signature waterfront had become a place to avoid. an johnson was on the city council then. >> the council and mayor at the time said we need to fix this problem in the heart of our city. >> with taxpayers' money and a seemingly limitless ability to issue municipal bonds stockton tried to spend its way back to prosperity. >> it was going to be remade and part of the greater bay area. >> $24 million for a minor league baseball park. $150 million for an 11,000 see the arena. 30,000 per slip for a yacht marina next door to new million dollars town homes.

>> risky and expensive projects but at the same time your city employees were getting extremely generous packages in pay and in benefits. why didn't anybody put up their hand and say wait a minute, this is insanity. >> there was a failure in leadership. they felt that the money would continue to roll in and property values would continue to rise. >> and then in 2008, the stock market crashed. real estate prices plunged. the city was suffering double digit unemployment at the same time property and sales revenue went off a cliff. when the city moved to reduce staffs and trim salary, benefit and pension packages the police union not only resisted. it launched an ad campaign that johnston look as a little short of a threat. >> they put up billboards which said welcome to the most dangerous city in california stop laying off cops. >> we wanted something to grab their attention. >> bill huddle is the vice

president of the president union. >> what about the blood splatter running tally. >> to let everyone know this would cause more crime and havoc and violence in the city. >> totally irresponsible and totally bullying. when you don't have the money you don't have the money. >> last february, stockton defaulted on $32 million in bonds. it declared bankruptcy. the biggest u.s. city to do so. meanwhile. >> we have is to stay locked up. >> folks we spoke to sense that for them life in stockton was likely to get worse. >> when we return, fixing a city that is broke. two democratic may 84s trying to get it done -- mayors trying to get it d [ kate ] most women may not be properly absorbing the calcium they take because they don't take it with food. switch to citracal maximum plus d. it's the only calcium supplement that can be taken with or without food. that's why my doctor recommends citracal maximum. it's all about absorption.

[ male announcer ] isn't always the one you plan to take. whoa, check it out. hey baby goat... nohat's not yours... [ hikers whispering ] ...that's not yours. [ goat bleats ] na, na, n-- no! [ male announcer ] now you can take a photo right from video, so you'll never miss the perfect shot. [ hikers laughing, commenting ] at&t introduces the htc one x. now $99.99. rethink possible.

this hour we have told you about cities bankrupted and lives shattered by folly, greed

and corruption. can any one turn the towns around? meet two democratic mayors trying and aair rently making progress. even cutting union pensions and benefits. >> the private sector is doing fine. where we are seeing weaknesses in the economy have to do with state and local government. >> both parties worry about cities going broke. but they seldom agree on how to fix the problem. >> because i'm sure that the president of the united states is not getting his talking points from the big government union bosses in washington. >> now, torn between the party most powerful supporters the realities of the city budgets. >> they are bumping up against liberal interest.

not enough money for basic services and roads. >> that is the case in san jose, california whose democratic mayor are chuck reid took office in 2007. >> what role did the public sector unions and their contracts really play in your fiscal crisis? >> most of our costs were driven by increasing salaries and pension benefit and those came out of the '90s in the go-go years when we had money. >> the average cost for a police officer and firefighters was $200,000. >> a year. >> what steps did you take to stop the bleeding. >> we cut everybody's pay by 10% starting with me all the way down to it all of the unions. everybody took a 10% pay cut. >> he cut city services, too. but that still left a $115 million deficit. it was time for a desperate measure. or as it became known, measure b. >> what exactly was that? >> measure b was a ballot when slur to' lou the voters to decide whether or not we are

going to ten to cut services or bring down the cost of pensions. >> it would save the city billions over time but voters had to approve it first. that was hardly a slam dunk in a county that vot voted 70% for obama in 2008. reed pushed his case hard, demonizing city workers says firefighter robert s api en. >> trying to convince the public things were bad in the city because of employees. in some cases people have been accosted in grocery stores. >> from the firefighters and police officers perspective have you heard the stories they have been verbally abused and treated with scorn? >> there have been some instances of that but the facts are difficult and the facts are we have cut services over and over and over again to fund very expensive retirement benefits. >> last june despite strong union opposition, 70% of san

jose voters, the same number that supported president obama in '08 vote the for measure b. reed got his victory the same day scott walker easily is survived a union led recall challenge. but the san jose democrat bristles at the comparison. >> lots of people tried to draw the parallel with san jose and wisconsin. it is not a good analcy. >> analogy. >> he says he wants to force the union to accept cuts while walker curtailed some of their bargaining rights. >> in san jose we negotiated with the unions hundreds of hours and they are are still an important part of what we have to deal with. providence, rhod, mayor tavares feels the same way. he took office in 2012. >> i came into office expecting the deficit just not one of the magnitude we found. >> he acted quickly, notifying

all 1934 providence teachers they could lose their jobs come summer. eventually he struck an agreement with the teachers' union that saved almost all of their jobs. and tens of millions of dollars. >> good to see you. >> nice to see you. >> he then approached the police and fire unions and got them to it agree to big cuts as well. >> he said i need your help. i can't do that without you. >> paul dowdy is president of the providence firefighters. >> if you have any solutions that you think will help please i'm open to them. i will do almost anything and that was over a sandwich. >> the unions knew they had to deal with tavares says nicole gelinas. >> they said if we don't vote for this we may get a lot worse if the city goes bankrupt. we would rather give back a little now than a bit later. >> the unions have not yet come around to that way of think back in san jose. >> no part of measure b will be

implement. >> instead, firefighters and police sued claiming measure b is unconstitutional. reed is standing firm. >> what is the one thing that keeps you up at night. >> the long-term fiscal impacts of these problems. spend the money if you have it. if you don't have it, don't spend it. >> we began this hour from this spot because wall street is the center of modern finance. but we end here on a different thought. behind me is federal hall. that is where our national government first met after the constitution was is ratified. one of the framers gravest concerns is that the nation could be profoundly weakened if debts run up by the states were not handled in a responsible way. not everyone agreed about what to do then and, yes, the issues are different today but two core ideas of the founders still apply. first, out of control debt can destroy is country's ability to chart its own destiny.

second and even more crucial, in crisis the exceptional character of the american people is the most important asset we possess. that is our program. i'm bret baier. thanks for at usaa, we believe honor is not exclusive to the military, and commitment is not limited to one's military oath. the same set of values that drive our nation's military are the ones we used to build usaa bank. with our award winning apps that allow you to transfer funds, pay bills or manage your finances anywhere, anytime. so that wherever your duty takes you, usaa bank goes with you. visit us online to learn what makes our bank so different. and every day since, two years ago, the people of bp made a commitment to the gulf. we've worked hard to keep it. bp has paid over twenty-three billion dollars to help people and businesses who were affected, and to cover cleanup costs. today, the beaches and gulf are open for everyone to enjoy --

and many areas are reporting their best tourism seasons in years. we've shared what we've learned with governments and across the industry so we can all produce energy more safely. i want you to know, there's another commitment bp takes just as seriously: our commitment to america. bp supports nearly two-hundred-fifty thousand jobs in communities across the country. we hired three thousand people just last year. bp invests more in america than in any other country. in fact, ovethe last five years, no other energy company has invested more in the us than bp. we're working to fuel america for generations to come. today, our commitment to the gulf, and to america, has never been stronger.

[ woman ] welcome to learning spanish in the car. you've got to be kidding me. this is good. vamanos. vamanos. vamanos. gracias. gracias. gracias. ♪ trece horas en el carro sin parar y no traes musica. mira entra y comprame unas papitas.