Stockton, Calif., to become largest city to declare bankruptcy
The Stockton City Council listens to statements from citizens Tuesday, June 26, 2012, in Stockton, Calif. / AP Photo
(CBS/AP) 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.
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 City Council on Tuesday voted 6-1 to adopt a special bankruptcy budget to address Stockton's $26 million shortfall if the city files for bankruptcy, as expected, by Friday.
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.
No easy answers for broke Stockton, Calif.Nearly bankrupt Calif. city mum on money solution
Bankruptcy looms for Calif. city deep in debt
The City Council on Tuesday voted 6-1 to adopt a special bankruptcy budget to address Stockton's $26 million shortfall if the city files for bankruptcy, as expected, by Friday.
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."
(At left, watch CBS News correspondent Ben Tracy's report for the CBS Evening News on the tough choices Stockton city leaders and residents faced.)
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."
Under a bankruptcy filing, officials would retain power over day-to-day city operations and staffing, but a judge would take over all decisions concerning the city's debts, said Robert Benedetti, professor of political science at the University of the Pacific in Stockton.
The judge would decide which creditors should be paid, how much and in what order. He would make allowances for expenditures needed by the city to function, and it would be up to city officials to decide how to spend that money.
"One of the reasons a city might want to go the bankruptcy route is that they don't want a situation where they have to pay out debts and have to close the police or fire department," Benedetti said. "Filing for Chapter 9 means you're asking the court to protect you against lawsuits from people who hold your debt."
Stockton's bankruptcy would make it the largest city by population to file for Chapter 9 protection, according to Jim Spiotto, a Chicago bankruptcy lawyer who tracks such cases. He said Bridgeport, Conn., was the largest city to file for bankruptcy, which it did in 1991, followed by Vallejo, Calif., which filed in 2008.
Jefferson County in Alabama is the largest local government bankruptcy filing to date in terms of the size of its debt. It occurred in November 2011 and was followed by Orange County, Calif., in 1994.
If a judge approves a bankruptcy plan, money to pay creditors would come from Stockton's general fund, which pays chiefly for public safety, including police and fire protection.
Experts say the bankruptcy filing, while protecting the city from catastrophe in the short run, should not be seen as Stockton's panacea.
"Bankruptcy won't take away Stockton's underlying financial problems, one of which is the economy, the high unemployment rate and the high foreclosure rate," Benedetti said. "It will take years for them to come out of this."
Stockton was the first city to test a new state mediation law, Assembly Bill 506, which is less than 6 months old.
Under the law, municipalities considering bankruptcy must first negotiate behind closed doors with creditors for up to three months, with the goal of settling debts without filing for Chapter 9 protection.
Stockton officials have said that even with a bankruptcy, they are optimistic. They point to Vallejo, a smaller California city that filed for Chapter 9 protection in 2008 and emerged from bankruptcy last year.
"Vallejo is leaner, smarter and they've got the confidence of their citizenry," Deis said. "I think Stockton will be doing the same."
Benedetti said Stockton has some things going for it: An excellent location, successful inland port and good university.
"It has some promising economic resources, so it's not all down and out," he said.
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Why do you not vote Ron Paul? You complain and complain about nothing changing, but when someone speaks up with REAL change, you put your backs up against the wall or run scared back to your historical party!
One day, and the day will be soon, the United States will implode and Stockton California bankruptcy will seem nothing at all.
You still have time, both Dems and Reps to make yourself heard at the Republican national convention. It's no joke, get up, book a ticket and go there!
People are not seeing that aspect. They just blindly obey what they are told what the problem is claimed to be (but isn't).
If I were a retired person and Stockton was breaking a several decades old contract to provide health care, I'd sue the city managers since it's obviously their fault for mismanaging the city.
It truly is more than one-sided, but the trolls around here are so one-way that some of us have to be equally one-way in return. Even I have ended up going that route, just to get it through their skulls that their own party is nowhere as sweet as their followers claim it to be.
Going by your method everyone would have to undergo a credit check before the triage nurse even ask what's wrong with you at the emergency room. "I'm sorry, you'll have to have your heart attack elsewhere as your credit score is below 700. Thank you and have a wonderfully Republican day!".
Do you know what 'socialism' truly means?
And speaking of other peoples' money, read these:
http://www.epi.org/publication/ib330-productivity-vs-compensation/
http://www.realitybase.org/journal/2009/3/10/the-american-dream-died-in-february-1973.html
http://www.nytimes.com/2012/05/13/opinion/sunday/fables-of-wealth.html
http://krugman.blogs.nytimes.com/2012/04/28/where-the-productivity-went/
http://motherjones.com/kevin-drum/2010/01/vicious-cycle-stagnant-wages
http://www.nytimes.com/2009/05/04/opinion/04krugman.html?_r=4
http://www.ctj.org/html/layoffs.htm
http://www.nytimes.com/2011/05/01/opinion/01eggers.html
http://greatdivide.typepad.com/across_the_great_divide/2009/06/walmart-workers-on-welfare-lets-look-for-the-spin.html
http://www.usatoday.com/news/nation/story/2011-09-13/census-household-income/50383882/1
http://www.thefiscaltimes.com/Media/Slideshow/2012/04/04/Minimum-Wage-and-What-It-Buys-You-1950s-to-Now.aspx?index=1
http://www.hollandsentinel.com/opinions/x13292164/COLUMN-American-workers-got-what-they-deserved
http://underthemountainbunker.com/2011/03/31/senator-bernie-sanders-guide-to-corporate-freeloaders/
http://www.truth-out.org/top-us-corporations-outsourced-more-24-million-american-jobs-over-last-decade/1303196400
http://www.ctj.org/html/corp0402.htm
http://money.cnn.com/2008/12/19/news/companies/auto_crisis/index.htm
http://www.sociology.vt.edu/course/socprobs/corporatewelfare.html
http://popwatch.ew.com/2011/05/02/undercover-boss-season-finale/
http://www.techrepublic.com/blog/career/supervisor-wants-employee-to-quit-part-time-job/2902
http://www.lawyersandsettlements.com/case/hiring-illegal-immigrants.html
http://www.cato.org/pub_display.php?pub_id=6283
http://ecosalon.com/squawk-our-tax-dollars-help-mcdonalds-hawk-chicken-in-europe/
http://drich13.newsvine.com/_news/2011/03/20/6307764-study-governor-walkers-budget-will-cut-21843-jobs-could-actually-hurt-state-economy
http://www.progress.org/cwfedex.htm
?http://www.infoworld.com/d/adventures-in-it/why-us-it-jobs-arent-coming-back-465?source=fssr
http://www.infoworld.com/d/the-industry-standard/beware-the-plot-increase-the-h-1b-visa-program-269
http://hubpages.com/hub/HowH1BVisaFRAUDiskillingAmerica?
http://www.computerworld.com/s/article/9133529/U.S._H_1B_workers_outnumber_unemployed_techies
http://www.ourfuture.org/corporate-welfare
http://mydd.com/story/2007/2/7/184312/5388
http://acsa.net/press/savearticlegates.htm
http://www.ritholtz.com/blog/2011/03/ronald-reagan-where-free-unions-and-collective-bargaining-are-forbidden-freedom-is-lost/
http://money.cnn.com/2009/08/28/news/economy/paycuts/index.htm
http://greatdivide.typepad.com/across_the_great_divide/2009/06/walmart-workers-on-welfare-lets-look-for-the-spin.html
http://www.larouchepub.com/other/2003/3045walmart_iowa.html
http://www.businessinsider.com/microsoft-to-grassley-were-still-using-h-1bs-no-moral-imperative-to-hire-americans-2009-3
http://www.google.com/search?q=americans+train+replacements+H1B
http://www.youtube.com/watch?v=uJDhS4oUm0M
http://anti-union.blogspot.com/2008/11/greedy-american-union-auto-workers-and.html
http://management.fortune.cnn.com/2011/03/25/unpaid-jobs-the-new-normal/
Happy reading.
P.S.
Do people know ALL the reasons for budget shortfalls, and lack of prosperity, and need for welfare, include
(a) jobs going offshore or being automated (meaning fewer people with jobs to tax, and it hurts our trade deficit as well since we're not making or servicing anything)
(b) SMBs failing due to large competition being allowed to destroy them with predatory tactics
(c) all the corporate subsidy (corporate welfare)
(d) corporate subsidy going to corporations THAT offshore
The class war, incidentally, started when the management demanded workers take pay cuts, train their own cheap H1B replacements, lost jobs due to illegals (who are also used to drive down wages...)