Stockton official: Mediation with creditors fails
STOCKTON, Calif. (KGO) -- The financially-strapped city of Stockton is headed for a history-making bankruptcy, as city leaders are forced to make some tough decisions.
Tuesday night, Stockton's city manager had some harsh words for the council as they voted to declare Chapter 9 bankruptcy. The filing will take place on Wednesday and Stockton will become the largest U.S. city to file for bankruptcy.
Ten years ago, property values in Stockton nearly quadrupled. The city was rolling in the dough and it was spending a lot of it too. Then the real estate bubble burst and now Stockton is unable to pay nearly $700 million of debt.
"The world is watching, thank God, so they can see that we are victims of this society that's failing us," said Adolph Egoroff, a Stockton business owner.
"So they leveraged themselves and they spent money that they were betting they would have and you just don't do that," said Stockton city manager Bob Deis.
Deis says it's going to take more cuts in public safety even though the city has already cut its police force by 25 percent and the fire department by 30 percent. He says retirees, who were promised lifetime medical benefits, may have to suffer next.
Unlike the city of Vallejo, which emerged from bankruptcy this year, the forecast for Stockton is not as optimistic.
Aside from approving Chapter 9 bankruptcy, the council decided to approve a new budget. There will be cuts in pay for all city employees and the promise of lifetime medical benefits for all retirees will be taken away next year.
"I feel terrible," said Mayor Ann Johnston earlier on Tuesday. She won't know whether the now-expired 90-day mediation period with creditors worked to prevent bankruptcy until the report is presented later, but it doesn't look good. "I had hoped, like everyone else, that we would not be at this place and time, that we would get behind this, that we would have solved our fiscal situation."
Before the Great Recession, the city of nearly 300,000 thought the good times, brought on by the housing boom, would stay forever. They improved the downtown waterfront with an impressive marina and built a fancy new arena. They even boosted retiree benefits, giving city workers and their spouses' health care for life after only one month of service in some cases. It's a hard lesson.
"Just because money is rolling in, doesn't mean you spend it all," said Johnston.
Now, banks have repossessed three parking garages and what was supposed to be the new $48 million City Hall. Residents appear split over whether Stockton should declare bankruptcy. Photographer Arnold Chin says yes.
"Stockton needs to hit the reset button. We need to hit the reset button to start over," said Chin.
Barber Terrance Fields says no way, it's the last thing a city now known for foreclosures and violence needs.
"I don't think bankruptcy is the right thing. I think they should be able to work through some of these creditors," said Fields.
It's interesting to note Chin was so mad at Forbes for putting Stockton on its most miserable cities list twice that he sent the magazine pictures of happy residents, but after being robbed, he's now thinking of moving away because he calls the cutbacks in police life-threatening.
"I have to think of my family and the safety aspect of my family," Arnold Chin.
Stockton's financial collapse has forced the city to slash $90 million in recent years and one quarter of all government positions. If bankruptcy is inevitable, city council will have to adopt a special budget that closes a $26 million deficit.
bankruptcy, california budget crisis, stockton, economy, california news
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