Stockton, Calif., officials are considering taking the first step towards filing for Chapter 9 bankruptcy protection. It would be the most populous US city to seek bankruptcy protection if they choose that route, Bloomberg News reported.
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The City Council is scheduled to meet Tuesday to discuss allowing Stockton to enter a "neutral evaluation process" with creditors and authorizing the city manager to suspend some bond payments for the rest of the fiscal year, the Wall Street Journal reported.
"The city is in an immediate and severe fiscal crisis and it is or likely will become unable to meet its financial obligations," City Manager Bob Deis wrote in a memo to council members, the Wall Street Journal reported. "Absent some negotiated adjustments to the City's financial obligations, the city will be insolvent and will have no alternative than to seek bankruptcy protection.”
At a press briefing at Stockton’s City Hall today, Deis explained how the city, a farming hub 80 miles from San Francisco, got into this mess, Bloomberg News reported. He said high salary and benefits costs, “bookkeeping errors” and poor fiscal management during the recession had depleted the city’s coffers.
In 2010, Stockton had the second-highest foreclosure rate in the US and the eighth-highest unemployment rate – almost double the national average in Dec. 2010 at 15.9 percent, Bloomberg News reported.
According to the Los Angeles Times:
The city has twice declared fiscal emergencies, and has resorted to severe budget cuts and layoffs to lighten the financial burden. (Stockton's police union revolted against layoffs by posting billboards – emblazoned with the city manager's phone number – warning of further crime in a city where it was already rampant if more police were let go.)
Some city leaders are opposed to filing for bankruptcy because, they say, it would cost taxpayers millions in legal fees while driving down property values and slowing business growth, the LA Times reported. "We're starting to come out of the economic rut we've been in," Councilmember Dale Fritchen told the Stockton Record, according to the LA Times. "We're starting to see some light."
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