Stockton CA prepares to declare bankruptcy

[Wiseacre]

This looks like the wave of the future to me. Below is from the LA Times last week. Curious to see what happens. I'm guessing there'll be further litigation, before all is said and done. Will Detroit be headed down this road?


" The city of Stockton moved a step closer to becoming the nation's largest city to declare bankruptcy, authorizing the city manager to file for Chapter 9 protection from creditors.
A 6-1 vote after a tense 4 1/2-hour public meeting Tuesday directed City Manager Bob Deis to file if the current mediation process fails. On March 27, Stockton stopped payments to creditors and entered a confidential mediation process under AB 506, a California law designed to slow municipal bankruptcies by forcing all parties to the table. Under this law, the bargaining period has a 60-day limit, unless all parties agree to extend it for another 30 days.
The city and its creditors agreed to extend negotiations through June 25.
Deis said he wants to be ready to go to bankruptcy court the next day if talks fail.
A statement released by the city described the financial situation as "dire" and noted that the city will face a $26-million deficit by July 1.
The port city of 290,000 has one of the highest home-foreclosure rates in the nation, as well as a high rate of violent crime. City Hall also is in an ongoing struggle with police and city workers unions over pensions. It has already cut many city services and is selling off properties such as city parking garages.
"It's time to stop the chaos and degradation of this organization and fix the structural imbalance," Deis said in a statement. "We have to start the road to recovery."

Stockton moves another step closer to bankruptcy - latimes.com

 

[waltky]

Granny don't put much stock in Stockton...

Judge rules Stockton, Calif., to enter bankruptcy
April 1, 2013 — The people of Stockton will feel financial fallout for years after a federal judge ruled Monday to let the city become the most populous in the nation to enter bankruptcy.

But the case is also being watched closely because it could answer the significant question of who gets paid first by financially strapped cities — retirement funds or creditors. "I don't know whether spiked pensions can be reeled back in," U.S. Bankruptcy Judge Christopher Klein said while making the ruling. "There are very complex and difficult questions of law that I can see out there on the horizon." The potential constitutional question in the Stockton case is whether federal bankruptcy law trumps a California law that says money owed to the state pension fund must be paid.

In making his ruling, Klein disagreed with creditors who argued that Stockton failed to pursue all avenues for straightening out its financial affairs. "It's apparent to me the city would not be able to perform its obligations to its citizens on fundamental public safety as well as other basic government services without the ability to have the muscle of the contract-impairing power of federal bankruptcy law," Klein said. A statement released by creditors said the group "respectfully disagrees with the court's ruling." The legal team for those creditors declined to say whether it would ask Klein for permission to appeal his decision — a requirement of bankruptcy code.

Stockton has tried to restructure some debt by slashing employment, renegotiating labor contracts, and cutting health benefits for workers. Library and recreation funding have been halved, and the scaled-down Police Department only responds to emergencies in progress. The city crime rate is among the highest in the nation. Since cities can't liquidate assets, those that declare bankruptcy must come up with a plan for creditors to forgive some of the debt. Holders of the biggest portion of Stockton's debt insured $165 million in bonds the city issued in 2007 to keep up with payments to the California Public Employees Retirement System as property taxes plummeted during the recession.

Stockton now owes CalPERS about $900 million to cover pension promises, far the city's largest financial obligation. Many struggling cities across California are in the same situation. So far, Stockton has kept up with pension payments while reneging on other debts, maintaining it needs a strong pension plan to retain its pared-down workforce. Attorneys for creditors argued that it was unfair for their clients to accept reduced payments while the pensions negotiated in flush times went untouched. They argued that employees who shared the wealth during good times should bow have to endure some of the pain with cuts to their pensions.

More Judge rules Stockton, Calif., to enter bankruptcy | CNS News

 

[Katzndogz]

They can't meet those outrageous pension obligations they negotiated in boom times.

You want to know why the stock market is riding so high? This is a clue. The people that got suckered into buying bonds are going to get hosed. No one wants to buy bonds. They aren't a good buy so it's stocks.

 

[auditor0007]

This looks like the wave of the future to me. Below is from the LA Times last week. Curious to see what happens. I'm guessing there'll be further litigation, before all is said and done. Will Detroit be headed down this road?


" The city of Stockton moved a step closer to becoming the nation's largest city to declare bankruptcy, authorizing the city manager to file for Chapter 9 protection from creditors.
A 6-1 vote after a tense 4 1/2-hour public meeting Tuesday directed City Manager Bob Deis to file if the current mediation process fails. On March 27, Stockton stopped payments to creditors and entered a confidential mediation process under AB 506, a California law designed to slow municipal bankruptcies by forcing all parties to the table. Under this law, the bargaining period has a 60-day limit, unless all parties agree to extend it for another 30 days.
The city and its creditors agreed to extend negotiations through June 25.
Deis said he wants to be ready to go to bankruptcy court the next day if talks fail.
A statement released by the city described the financial situation as "dire" and noted that the city will face a $26-million deficit by July 1.
The port city of 290,000 has one of the highest home-foreclosure rates in the nation, as well as a high rate of violent crime. City Hall also is in an ongoing struggle with police and city workers unions over pensions. It has already cut many city services and is selling off properties such as city parking garages.
"It's time to stop the chaos and degradation of this organization and fix the structural imbalance," Deis said in a statement. "We have to start the road to recovery."

Stockton moves another step closer to bankruptcy - latimes.com

I'm not familiar with the situation in Stockton, but bankruptcy for Detroit might just be what the doctor ordered. Under Bankruptcy, Detroit might actually be able to shut down a good third of the city that is basically uninhabited anyway, forcing out anyone remaining so that the land can be sold off and redeveloped. Hell, they could give the land away to developers. The only way to revive Detroit is to demolish entire swaths of the city and rebuild, but they need developers willing to make the investment. They are not going to pay much for land where first they must demolish one building after another.

 

[bucs90]

Stockton made promises it couldnt keep. Labor is a competitive market. Stockton tried to outbid other cities for cops, firemen, etc. Thats part of the problem having thousands of police departments in America rather than one central National Police. But, the pros far outweigh the cons of having that kind of fragmented authority, for obvious reasons.

Im all for good pay and benefits for cops. But, to a point. Eventually, you commit to more than you can give. Thats when it comes time to use things that are non-monetary, like work environments, etc, etc, that dont cost as much money to give.