| STOCKTON, Calif., June 26
STOCKTON, Calif., June 26 Stockton, California
was poised on Tuesday to take a major step toward becoming the
largest U.S. city ever to file for bankruptcy after talks with
its creditors on Monday at midnight.
Negotiations aimed at averting bankruptcy may press on
informally, the city's spokeswoman said, adding that city
officials would next discuss any moves toward bankruptcy at the
city council meeting on Tuesday evening.
The council's main order of business will be taking up and
voting on a proposed budget to guide Stockton during bankruptcy,
an option city officials have been considering since February.
City Manager Bob Deis, who the council has authorized to
file for Chapter 9 bankruptcy, last week unveiled the budget
proposal, also known as a pendency plan.
The plan assumed Stockton, a city of 292,000 people about 85
miles (about 135 km) east of San Francisco, would fail to win
concessions from its 18 creditors to close its $26 million
shortfall for the fiscal year beginning on July 1.
To help close the budget gap, Stockton's plan would suspend
$10.2 million in debt payments, a move likely to trigger rating
agencies to further downgrade the city, and reduce spending on
employee compensation and retiree benefits by $11.2 million.
About $7 million in savings would come from cutting retiree
health care benefits for one year and then phasing them out.
Stockton officials have said the benefits are a crushing expense
due to their fast rise and projected liability of $417 million.
Stockton's confidential mediation with its creditors -
required by a state law approved after the bankruptcy of
Vallejo, California in 2008 - was part of an effort launched in
February by city officials to restructure the city's finances in
time for the beginning of its next fiscal year.
The plan, however, left open the possibility of a bankruptcy
filing in light of Stockton's severe financial troubles.
Mark McLaughlin, a member of the board of the city police
officers' union, said he is resigned to a bankruptcy filing but
expects his group will try to seek common ground with city
before it should take that drastic step.
"It's unfortunate we're here but we need to keep working
with the city," McLaughlin said.
Stockton's finances collapsed along with its housing market,
forcing city officials to slash $90 million in spending in
recent years and a quarter of positions across agencies.
Despite the cuts, Stockton has not been able to avoid
recurring deficits. Its revenue is weak and its financial
troubles have been compounded, according to city officials, by
generous pay and benefits for city workers and retirees and too
much debt taken on by the city 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.
Under its restructuring plan, Stockton has already defaulted
on about $2 million in debt, allowing the trustee for one of its
bond insurers to seize a building once slated to be its future
city hall and three parking garages.
The intentional default and of bankruptcy 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 has its issuer rating for Stockton at a junk level
Ba2 from Baa1 while S&P has its issuer rating on the city from
BB to SD, one notch above its D default rating.
A bankruptcy filing by Stockton is a "high-probability
event," Gregory Lipitz, a vice president and senior analyst at
Moody's, said on Monday.
(Reporting By Jim Christie)