STOCKTON, CA — On Thursday, June 28, 2012, the City of Stockton joined an estimated 640 Government entities that have file bankruptcy since 1937: when Chapter 9 Title 11 was enacted into the United States Bankruptcy Code, available exclusively to municipalities.
A 6 to 1 vote, at the Tuesday, June 26th Council meeting, made it possible for City Officials to file for Chapter 9 bankruptcy protection at the US Bankruptcy Court, Eastern District of California, Sacramento Division. “We are extremely disappointed that we have been unable to avoid bankruptcy,” said Mayor Ann Johnston. “This is what we must do to get our fiscal house in order and protect the safety and welfare of our citizens.”
City Council adopted a Pendency Plan which is the budget and the operational plan for the City while the petition is pending with a Federal Bankruptcy Court. The Pendency Plan includes; suspending payment of bonds, claims and long term debt paid by the General Fund; shifting some funds to other sources; modifications to terms of labor and employee agreements that reduce costs; more employee salary and benefit reductions, including reduction and ultimately elimination of City contributions to retiree medical insurance.
It is estimated that the city owes nearly $1 billion in long-term debt, and the city’s 2012-13 fiscal year fund would have a $26 million deficit without the bankruptcy filing. The City’s debt has been attributed to one of the most healthy retiree benefit plan, large projects as the Stockton Arena, the Bob Hope renovation, a new City Hall and renovation of the marina. All projects were anticipated to be funding in their majority by the housing which crumbled starting in 2008.
However, the City is expected to have resistance not only from some of its residents but also creditors with whom officials have been negociating as part of the mediation process mandated by Assembly Bill 506. Scott Smith, Writer at the Stockton’s Daily, The Record , wrote on June 30th that New York-based Assured Guaranty insures $161 million worth of debt the city has stopped paying down. “Assured Guaranty in a prepared statement scolded the City Council for not averting bankruptcy by trying first to sell off property, end unessential services, raise taxes and force further concessions from employees and retirees.”
On the other hand, “There are whole lot of people out here that you have not heard from today,” explained Gary Gillis, retired City of Stockton Fire Chief and Board Member of the Association of Retired Employees of the City of Stockton . During the Tuesday meeting he added, “There are people who are going to be devastated, out of their homes; there are some people that have such severe problems that are not going to be taken by any insurance out there.” Gillis asked that the city reconsider the medical part of the Pendency Plan to aide those that cannot pay.
In addition to the bankruptcy petition, the City has filed a motion to request permission to share information from the confidential mediation process. “This is not to diminish the service and contributions of our employees and retirees,” said City Manager Bob Deis. “Our General Fund resources are depleted, and we cannot allow the City to spiral into uncontrolled default. Bankruptcy stops a barrage of lawsuits and allows the City breathing room while working toward a Plan of Adjustment and moving Stockton forward.”
On a statement, city officials noted that there is no measurable service reductions included in the Pendency Plan, and citizens will not see any changes in service after July 1. Employees, vendors and service providers are essential to providing services and will continue to be paid in a timely manner.