After months of negotiations with creditors bankruptcy was the only option
Stockton, California will be filling for bankruptcy protection, making it the biggest U.S. city to seek court protection from creditors. The city will file for Chapter 9 bankruptcy.
On Tuesday, city council members approved a budgeting plan that will amend the $26 million shortfall. The new budget plan includes suspending dept payments, cut employee pay and reduce retiree benefits—allowing its residents to be provided with services throughout the bankruptcy process.
City manager, Bob Deis said, “This is not where any one of us wanted to be…but absent restructuring agreements with our creditors, any other options would decimate the city.”
During the Tuesday meeting, city retirees and citizens begged officials to preserve benefits and avoid bankruptcy. Geri Ridge, a retired police department employee, said she fears she may not be able to afford health-care insurance.
“I don’t have that kind of income,” said Ridge, stating her monthly $1,895 monthly pension will be consumed by insurance costs due to a history of heart attacks.
Officials have said that their city’s financial situation is a combination of fiscal mismanagement over two decades and too much debt taken on in good times, as well as generous pay and unsustainable benefits for city employees and retirees.
Revenue in Stockton began to suffer when revenue in the once in-demand housing market collapsed—putting Stockton near the top of the national foreclosure list. The former farming city became transformed into an outside community of the San Francisco Bay area.
In recent years to overturn the city’s falling finances, Stockton cut more than $90 million in spending and slashed its work force.
David Skeel, a law professor at the University of Pennsylvania, doesn’t approve of Stockton’s plan to use bankruptcy court to restructure, “To me Stockton confirms that Chapter 9 bankruptcy is not just for small municipalities…Here’s a substantial city going into bankruptcy at a point in time when there are dozens and dozens of cities across the country in comparable states of financial distress.”
According to NBC, Stockton’s budget would cut employee compensation and retiree benefits by $11.2 million. It is expected to bring in $7 million in savings by cutting retiree and medical benefits for one year then phasing them out.