Tough Times in Stockton, California Are Getting Worse

Below is an article containing an update on Stockton, California's financial woes. Although it's a familiar story, it does point out what happens at the end of  the road unless people take remedial action early enough.

Stockton Moves Close to Bankruptcy says this:

"The city of Stockton, Calif., took a move closer to filing for Chapter 9 bankruptcy protection late Tuesday night in the face of overwhelming debt.

The City Council, by a 6-to-1 vote, passed a resolution authorizing City Manager Bob Deis to declare Stockton bankruptcy if the city can't reach an agreement with creditors that prevents insolvency by the time a state mediation process is set to expire June 25, said Stockton spokeswoman Connie Cochran.

The city of 300,000 owes more than $700 million in long-term debt to creditors, and officials there say it faces a budget deficit of $26 million in the fiscal year that begins July 1 due to financial problems that also include high retiree costs.

The city in February began negotiating with 19 parties, including retirees, city workers, bondholders and bond insurers under a new California law that requires municipalities to hold mediations before filing for Chapter 9 bankruptcy protection.

If the city fails to gain debt relief from the creditors, a city report says Stockton will have to file for bankruptcy before the beginning of the fiscal year in order to insure the continuation of city operations such as fire and police.

Chapter 9 bankruptcy protection provides a financially distressed municipality protection from its creditors while it develops a plan for adjusting its debts. Creditors can't demand a liquidation of assets to force the municipality, while under protection, to repay debts.

 In California, Stockton Faces Municipal Bankruptcy Vote was a previous article on the same topic:

""The city is in a very dire situation," said Marc Levinson, a bankruptcy attorney for Stockton who declined to discuss details of the meditation process. . . .

The deficit is expected to grow to $40 million annually by 2016, according to city records.

Retiree costs and worker compensation helped contribute to the city's plight, according to city records. The city also made an aggressive push to build up its downtown, taking on more than $100 million in debt since 2003. . . .

The city has already defaulted on three sets of bonds, a move city officials decided to make in order to continue city operations. The defaults resulted in Stockton's losing control of three parking garages and an eight-story office building slated to be the city's new city hall.

A report prepared by city staff, which is expected to be presented at the city council meeting next week, reports that Stockton is already insolvent and won't be able to adopt a balanced budget by July 1, as required by California law.

The report, which Mr. Levinson helped write, says the city must prepare for bankruptcy to file documents before the beginning of the fiscal year in order to insure the continuation of city operations such as fire and police.

The report also says retiree costs must be reined in if the city is to reach solvency. Retiree health costs are expected to increase by 115% and pension costs by 94% by 2022, the report says. Retiree costs represent nearly 20% of the city's budget, while another 50% goes toward salaries and benefits, the report says.

Stockton is one of several California cities facing financial crisis. Vallejo, north of San Francisco, recently emerged from bankruptcy protection that it entered in 2008."

Short Summary

And so it goes across the country and in many parts of the rest of the world, too.

Thanks. Bob.