| SAN FRANCISCO, June 25
SAN FRANCISCO, June 25 Stockton, California
was at risk on Monday of becoming the largest U.S. city ever to
file for bankruptcy as the clock ticked down toward the midnight
deadline of talks with creditors.
If Stockton, home to a population of 292,000 about 85 miles
east of San Francisco, fails to win concessions in the talks to
close a $26 million shortfall for the fiscal year beginning on
July 1, City Manager Bob Deis will soon seek protection from
creditors with a rare Chapter 9 bankruptcy filing.
On Tuesday evening the city council will vote on a
so-called pendency plan budget crafted by Deis to guide the
city's finances during bankruptcy proceedings.
The plan would suspend $10.2 million in debt payments and
reduce spending on employee compensation and retiree benefits
by$11.2 million. It will also probably trigger rating agencies
to further downgrade the city.
Former city manager Dwane Milnes, who represents retired
city employees, showed little faith in a last-minute
breakthrough in the confidential mediation between Stockton and
its creditors that has being going on for the last three months.
"My sense is that they'll go ahead and adopt the pendency
plan," said Milnes, adding that talks have been particularly
difficult with 18 different parties negotiating with the city.
"I would be surprised if they get everybody in the tent."
The mediation was required by a state law approved after the
bankruptcy of Vallejo, California in 2008.
Stockton spokeswoman Connie Cochran declined to comment on
the talks but said they could press on informally even after
A BUDGET IN BANKRUPTCY
Stockton has already defaulted on about $2 million in debt
since February, requiring it to surrender a building once slated
to be its future city hall and three parking garages to the
trustee for one its bond insurers.
The intentional default and prospect of bankruptcy have
prompted Moody's Investors Service and Standard & Poor's Ratings
Services to drop their credit ratings on Stockton, which has
more than $700 million in debt across its various agencies.
Moody's since February has cut its issuer rating for
Stockton to a junk level Ba2 from Baa1 while S&P has dropped its
issuer rating on the city from BB to SD, one notch above its D
Gregory Lipitz, a vice president and senior analyst at
Moody's, said a bankruptcy filing by Stockton is a
A major area targeted for savings in the pendency plan is
Stockton's compensation for city employees and retired city
The plan would cut roughly $7 million by reducing for one
year and then phasing out retiree medical benefits. Stockton
officials have repeatedly said retiree medical benefits
represent a crushing expense for the city due to their rising
cost and their projected liability of $417 million.
That spending and bond payments are on the chopping block
because city officials fear cutting deeper into public safety
spending due to a spike in crime and because so much other city
spending has been sharply cut in recent years, said Jeffrey
Michael, director of the Business Forecasting Center at the
University of the Pacific in Stockton.
"It's definitely about sharing the pain a little more
broadly," said Michael. "Up until recently there has been no
real impact on the retirees or bond creditors ... The employees
and the citizens have been bearing all of the pain."
Stockton's finances collapsed along with its housing market,
and despite slashing $90 million in spending in recent years and
cutting a quarter of positions across its agencies, the city's
finances cannot shake recurring deficits due to weak revenue.
Stockton's financial troubles have been compounded,
according to city officials, by generous pay and benefits for
city employees and retirees and the city taking on too much debt
when it enjoyed a home-building boom in the early part of the
last decade that transformed it into a distant bedroom community
for the San Francisco Bay area.
Many of the houses built and bought in that boom have been
abandoned, repossessed and sold at deep discount as Stockton has
been at the top or near the top of lists of housing markets
suffering a glut of foreclosures in recent years.
(Reporting by Jim Christie, editing by Tiziana Barghini and