Stockton, Calif. to file for bankruptcy

1:28 PM, Jun 27, 2012   |    comments
(Justin Sullivan/Getty Images)
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STOCKTON, Calif. -- The Stockton City Council on Tuesday voted to file for bankruptcy in what one top official called the only option for the city.

After the 6-1 vote, City Manager Bob Deis could file for Chapter 9 bankruptcy as early as Wednesday, and would become the largest city in America to do so. The actual deadline is July 1-- the beginning of the new fiscal year.

Stockton Mayor Ann Johnston said this was the most difficult decision she ever had to make as an elected official. She said the city is running out of cash very quickly and struggles to pay the bills.

Councilman Dale Fritchen, who cast the lone dissenting vote, said not declaring bankruptcy was the hard decision and trying to find ways to save the city is harder to do.

"I am not convinced there isn't anything else we can do," Fritchen said. "We keep our promises until we can't. We haven't done everything."

At the end of February, the council voted to begin the process to file for bankruptcy by entering into a 60-day mediation process with the city's creditors. The mediation time was extended an extra 30 days in late May.

Midnight Monday was the deadline for the city and creditors to come to an agreement on a payment plan.

Deis told city council members that filing for Chapter 9 protection is the only option for the city. He asked council members to approve the Pendency Plan, which is a special bankruptcy budget to plug next year's anticipated $26 million deficit; the budget is expected to suspend debt payments, reduce payments for retiree medical benefits and increase revenue through code enforcement and parking citations, among other steps. That resolution passed 6-1, with Fritchen again dissenting.

During a presentation to the council, Deis said there was no agreement between creditors and the city.

However, Deis continued to say the city is still in negotiations with creditors, even though the mediation period has ended.

Unsustainable labor costs, state raids on city finances and the recession all contributed to Stockton's financial problems, Deis said.

City services will operate the same after the bankruptcy filing is finalized, Deis said. He added that the city can continue to negotiate with creditors and it can't be sued while in bankruptcy.

During the public comment section of the meeting, many residents spoke up against filing for bankruptcy.

Geri Ridge, who retired as a civilian employee of the police department said she would be priced out of health care coverage under the new "pendancy" budget adopted by the council Tuesday night. She has already suffered two cardiac events that nearly killed her, and she won't qualify for Medicare for another 10 years.

"An aneurysm was the first one -- heart failure the second time, so there's a chance I won't even make it to 65," Ridge said.

Some residents are hoping to gather enough signatures to put a referendum on the ballot that might force the city to move money from other budgets into maintaining health care for retirees.

"It can be done. We just have to get our forces marshalled and have enough people that are disgusted with this outcome tonight to mobilize and make it happen," said Stockton Occupy member Lynn Prater.

It was not immediately clear if a referendum could legally stop or change the process.

According to the city's human resources representative, retirees will receive an insurance invoice, which will be sent out Wednesday, and everyone will still have medical coverage.

Deis said the city can't adopt pension reform plans without getting state legislature and CalPERS approval because the city uses the state's resources to manage the city's pension program.

It will cost the city about $3.5 million for Chapter 9 restructuring fees, Deis said.

(KXTV/USA Today)

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