Quantcast
Get breaking news alerts via email

Click here to manage your alerts
Members of the Stockton City Council listen to citizen statements Tuesday, June 26, 2012, in Stockton, Calif. Stockton officials continue to grapple with the city's financial plight, struggling to restructure millions of dollars of debt threatening to turn the city with the nation's second highest foreclosure rate into the largest American city to file for bankruptcy. (AP Photo/Ben Margot)
Stockton, Calif., set to become the largest American city ever to declare bankruptcy

First Published Jun 26 2012 10:48 pm • Last Updated Jun 26 2012 11:05 pm

Stockton, Calif. • Officials in Stockton said Tuesday that mediation with creditors has failed, meaning the Central California city is set to become the largest American city ever to declare bankruptcy.

City Manager Bob Deis said officials were unable to reach a deal to restructure hundreds of millions of dollars of debt under a new state law designed to help municipalities avoid bankruptcy.

Photos
Join the Discussion
Post a Comment

Monday marked the three-month deadline for negotiations.

"Unfortunately we have no comprehensive set of agreements with our creditors that would eliminate the deficit and avoid insolvency," Deis said at a City Council meeting. He said, however, that the city was still negotiating with some creditors and could reach deals with as many as one-third of them.

"We think Chapter 9 protection is the only choice left. If we get any agreements, those will be honored in Chapter 9," Deis said.

The Council was expected to vote later Tuesday on a special bankruptcy budget to plug next year’s anticipated $26 million deficit, and city lawyers could file for Chapter 9 protection in court as soon as Wednesday.

The river port city of 290,000 in Central California has seen its property taxes and other revenues decline, while expensive investments and generous retiree benefits drained city coffers.

In the past three years, officials in the city that was slammed by the collapse of the housing market dealt with $90 million in deficits through a series of drastic cuts.

They eliminated one-fourth of the city’s police officers, one-third of the fire staff, and 40 percent of all other employees. They also cut wages and medical benefits.

To plug next year’s anticipated $26 million shortfall, the proposed budget would suspend payments for debts and legal claims, reduce payments for retiree medical benefits, further cut some pay and benefits, and increase revenue through code enforcement and parking citations.


story continues below
story continues below

The proposed budget includes no major service reductions, Deis said earlier.

"The whole purpose of filing Chapter 9 is to avoid an uncontrolled chaotic situation," he said. "Bankruptcy provides the equivalent of a pause button. It retains services and provides structure so you don’t have a bunch of lawsuits."

In a standing-room only chambers Tuesday, former city employees told council members about their life-threatening medical conditions and said benefit cuts meant they would effectively lose their health insurance.

"For me, bankruptcy might as well be a life sentence," said Gary Jones, a retiree who used to be a police officer in Stockton and said he was diagnosed with a brain tumor.

Other residents complained about plummeting property values, and recurring break-ins and robberies.

"The average citizen will not put up with this. Their home prices have plummeted, they have no jobs, a lot of people are getting fed up so that they have to resort to crime." said Gregory Pitsch, a 22-year-old unemployed resident who made an unsuccessful run for mayor. "I’m asking you to make the right decision, not destroy the property values in this city, which bankruptcy will do."

But city officials say Stockton has run out of options. In recent years, thousands of new homes mushroomed in Stockton, part of a suburban housing boom that attracted buyers from the San Francisco Bay area and beyond.

When the economy crashed and the construction bubble burst, Stockton was battered by foreclosures and lost income from property taxes and other fees.

Multi-year labor contracts for city workers carrying escalating costs and generous retirement plans added to the burden.

In addition, expensive city investments — a promenade, sports arena and hotel — failed to produce an economic boon.

The unemployment rate has doubled in Stockton over the past decade and now hovers around 16 percent. One-fifth of residents live below the poverty line, and the city has twice topped Forbes magazine’s list of "America’s most miserable cities."

Next Page >


Copyright 2014 The Salt Lake Tribune. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Top Reader Comments Read All Comments Post a Comment
Click here to read all comments   Click here to post a comment


About Reader Comments


Reader comments on sltrib.com are the opinions of the writer, not The Salt Lake Tribune. We will delete comments containing obscenities, personal attacks and inappropriate or offensive remarks. Flagrant or repeat violators will be banned. If you see an objectionable comment, please alert us by clicking the arrow on the upper right side of the comment and selecting "Flag comment as inappropriate". If you've recently registered with Disqus or aren't seeing your comments immediately, you may need to verify your email address. To do so, visit disqus.com/account.
See more about comments here.
Staying Connected
Videos
Jobs
Contests and Promotions
  • Search Obituaries
  • Place an Obituary

  • Search Cars
  • Search Homes
  • Search Jobs
  • Search Marketplace
  • Search Legal Notices

  • Other Services
  • Advertise With Us
  • Subscribe to the Newspaper
  • Login to the Electronic Edition
  • Frequently Asked Questions
  • Contact a newsroom staff member
  • Access the Trib Archives
  • Privacy Policy
  • Missing your paper? Need to place your paper on vacation hold? For this and any other subscription related needs, click here or call 801.204.6100.