Stockton, California to be the largest U.S. city ever to file for bankruptcy

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    Jun 26, 2012 9:24 PM GMT

    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.
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    Jun 27, 2012 12:58 PM GMT

    Stockton official: Mediation with creditors fails

    In opting to become the nation's largest city to seek federal bankruptcy protection, this river port of 290,000 took a rare financial step of last resort after struggling with the economic downturn, soaring pension costs and contractual obligations.

    Only 13 cities, counties and other government entities filed for bankruptcy protection last year - the highest annual level in nearly two decades. Stockton was the seventh U.S. municipality to file this year and the first California city since Vallejo, which sought protection in 2008, according to James Spiotto, a Chicago bankruptcy attorney who tracks municipal bankruptcies.

    "Filing bankruptcy is time-consuming, expensive and complicated," said Spiotto, noting that Vallejo spent millions of dollars alone on attorneys and other bankruptcy professionals. "And you never get the results you desire."

    That's why experts are divided on whether other financially struggling cities, towns and other government entities will follow Stockton to bankruptcy court. Spiotto said it will be hard and expensive for Stockton to obtain financing.
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    Jun 27, 2012 1:01 PM GMT
    Also more here - The reuters article seems to suggest that this failure was the result of the housing market collapse. It wasn't - it was the result of ridiculous spending including paying Neil Diamond $1M to play Sweet Caroline for a free concert -

    It was 2006 and local officials were happy to pay the musician $1 million in taxpayers' money to perform Sweet Caroline as they rode high on the back of a turbocharged housing market.

    However, the concert has come to symbolise the staggering financial irresposibility that now has the city staring into an abyss.

    Barring a last minute reprieve, Stockton, which has a population of 300,000, will become the largest city in American history to file for bankruptcy on Tuesday.
    Its demise is perhaps the most extreme example of a nation's boom-time spending splurge, and a cautionary tale of what happens when the bills finally have to be paid.

    "I have nothing personal against Neil Diamond but that was just a huge waste of money," said Ann Johnston, the current mayor charged with cleaning up Stockton's financial mess.
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    Jun 27, 2012 1:09 PM GMT
    Some stark information - heard from a TV reporter, did not fact check

    1. Stockton is just the beginning.

    2. For every policeman or fireman in Stockton, they must pay the pensions for two others.

    3. A fireman can retire at age 50 and make $157,000 per year for life plus medical benefits. Realize age 50 for their type of work may be the limit, but $157,000?

    4. Politicians went along with this, but is there any doubt that public employee unions pushed this with the concurrence of the union members?

    5. Amazing that anyone in good conscience can suggest that the reforms in Wisconsin were not long overdue.

    6. The past unions enjoyed forced collection from workers, and have enjoyed a completely unholy relationship with the Democratic Party. Times have changed.