Bloomberg News

Stockton Weighs Bankruptcy Option in Confronting Deficit

May 15, 2012

Stockton, the central California city on the brink of insolvency, weighed filing for bankruptcy as it faces a $26 million budget gap in the next fiscal year.

A Chapter 9 bankruptcy filing, massive cuts to city departments or concessions that may emerge from negotiations with creditors are among the options for balancing the spending plan, City Manager Bob Deis told the City Council at a meeting on the fiscal 2013 budget. Bankruptcy is an option only if the talks fail, Deis said yesterday.

“The city needs to tighten the belt and start crawling our way out of this hole,” Deis said.

The farming center about 80 miles (130 kilometers) east of San Francisco is negotiating with creditors under the provisions of a new state law aimed at helping municipalities avoid bankruptcy. Unsustainable retiree health-care costs and labor contracts, large borrowings, the weight of the recession, state raids on its finances and poor fiscal management brought the city to this point, Deis said.

In February, the City Council voted to cut its fiscal 2012 budget by $15 million to deal with accounting errors. The deficit made defaulting on bonds and negotiating with creditors necessary to prevent insolvency before the year ends on June 30.

It would be illegal for the city not to balance its budget by July 1, Deis said.

Stockton’s financial practices and reporting are the subject of an investigation, state Controller John Chiang said last month. Chiang said he was responding to requests to better understand the city’s fiscal condition.

To contact the reporter on this story: Alison Vekshin in San Francisco at avekshin@bloomberg.net.

To contact the editor responsible for this story: Stephen Merelman in New York at smerelman@bloomberg.net.


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