Bankruptcy looms for Calif. city deep in debt

(CBS/AP) FRESNO, Calif. - Stockton in California's Central Valley is facing a moment of decision on whether to become the biggest American city to file for bankruptcy, as the deadline for talks with creditors approaches late Monday.

City Manager Bob Deis says officials are still hoping to reach a deal that would restructure millions of dollars of debt under a new state mediation law designed to help municipalities avoid bankruptcy.

Meantime, the Stockton City Council is scheduled to decide Tuesday whether to adopt a special budget in case of a bankruptcy declaration. The city would stop debt payments, reduce pay and benefits and increase parking citations, CBS Sacramento station KOVR-TV reports.

Deis says Stockton's lawyers could file for Chapter 9 protection in court as early as Wednesday.

City officials have promised that if they file for bankruptcy and adopt a special budget, there will not be cuts to services like the police and fire departments.

Stockton's property taxes and other revenues have significantly declined in recent years, while expensive investments and generous retiree benefits have drained city coffers.

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"I think Stockton's struck with bad luck," resident Vi Bahn told KOVR-TV.

People are already dealing with high crime, high unemployment and high foreclosures.

"It makes me think our leader is not doing his job or her job and that we're spending money on stuff that's not needed right now," resident Jonathan Wallace told KOVR-TV.

While officials admit some mistakes were made in the past, they say they're still paying for those mistakes, coupled with the still lingering crash of the economy, drastically shrinking property taxes and overly generous retirement plans.

"Frankly," said Wallace, "I don't know what to expect."