UPDATE: Stockton City Council Votes To Go Into Mediation With Creditors

STOCKTON (CBS13/AP) - The city of Stockton in California's crop-abundant Central Valley has the second-highest foreclosure rate in the nation and one of the highest crime and unemployment rates. It was named America's most miserable city in a national magazine — twice.

And now, officials say this river port city of 290,000 is on the brink of insolvency and could become the nation's largest city to fall into Chapter 9 bankruptcy protection.

The City Council voted late Tuesday night to continue the city's fiscal emergency for a third year and use a new California law to enter mediation with its creditors. Council members made the vote despite strong reaction from a packed crowd of concerned citizens, most of whom urged the council not to pursue bankruptcy.

"We have accomplished a lot in this city to have it destroyed in a year and a half," one angry resident told the City Council. "It's ridiculous to be embarrassed throughout the United States."

The council met for some six hours before voting to enter into mediation with its creditors. The next step after that would be to pursue bankruptcy protection.

Stockton will be the first city to test the law, Assembly Bill 506, which is less than two months old. It requires local government agencies to undergo mediation or hold a public hearing and declare a fiscal emergency before filing for bankruptcy.