Stockton officials entered formal bankruptcy proceedings late yesterday. See Bankruptcy Protection:
"Stockton, Calif., officially filed for Chapter 9 protection on Thursday,
making it the largest-ever U.S. city to file for bankruptcy.
Stockton officials said late Thursday that the Northern California city had
filed a petition for Chapter 9 bankruptcy with a Sacramento federal court. In a
statement, Stockton Mayor Ann Johnston said, "We are extremely disappointed that
we have been unable to avoid bankruptcy," but added the city had to enter
bankruptcy "to get our fiscal house in order."
City Manager Bob Deis said, "Our General Fund resources are depleted, and we
cannot allow the City to spiral into uncontrolled default. Bankruptcy stops a
barrage of lawsuits and allows the city breathing room while working toward a
Plan of Adjustment and moving Stockton forward."
Stockton's bankruptcy attorney, Marc Levinson, declined to comment. Stockton
officials didn't immediately return calls seeking further comment.
Earlier this week, Mr. Deis said Chapter 9 protection was Stockton's only
choice after failing to reach a deal to restructure more than $700 million of
debt with creditors.
Stockton, with a population of around 300,000, will now formally restructure
debt with 19 parties of creditors, including retirees, city workers and
bondholders. Mr. Deis said the city has already been able to reach agreement
with a third of the creditors during a mediation process that preceded the
bankruptcy filing. With the filing, the city will likely also suspend payments
to bondholders, make cuts to labor contracts and eliminate the city's
contribution to retiree health care.
Chapter 9 bankruptcy protection provides a financially distressed
municipality protection from its creditors while it develops a plan for
adjusting its debts. Creditors cannot demand a liquidation of assets to force
the municipality, while under protection, to repay debts.
Stockton's bankruptcy filing is the biggest for a U.S. city in terms of both
debt load and population. Bridgeport, Conn., which has 141,000 residents and
filed for Chapter 9 in 1991, was to date the largest city by population to enter
bankruptcy, according to federal records. And until now, the city with the
biggest debt load entering bankruptcy was Vallejo, Calif., which owed $50
million to creditors when it filed in 2008. (Vallejo emerged from insolvency
Stockton has spiraled into a morass of debt because of high retiree costs and
big spending on a downtown revitalization effort, coupled with falling
property-tax revenues because of the real-estate downturn, among other factors.
The city has slashed more than $90 million from its budget since
2009—including reducing its police department by 25%, cutting its fire
department by 30% and slashing pay by as much as 22% for some workers. Still,
the cuts were enough to overcome budget deficits, leading to Thursday's
bankruptcy filing. "
Now the painful decisions begin about apportionoing the limited funds between current workers, retirees and creditors.
Since the representatives of the various parties couldn't agree among themselves, the court will do it for them.
They'll be sorry in the end for not gutting up to their many issues earlier -- much earlier -- while there was still time to set things straight on their own.
And the citizens continue to be poorly served by city and union officials. Oh well, what's new about that?