Papers filed in Stockton bankruptcy; gag order may be lifted
City Manager Bob Deis electronically filed to the U.S. Bankruptcy court in Sacramento just before 5 p.m. Thursday, making it official.
“We are extremely disappointed that we have been unable to avoid bankruptcy,” Mayor Ann Johnston said in a statement. “This is what we must do to get our fiscal house in order and protect the safety and welfare of our citizens. We will emerge from bankruptcy with a solid financial future.”
City leaders on Tuesday night signaled their intent to file when they adopted an emergency budget that stopped bond payments and slashed employee health benefits and pensions.
The bankruptcy comes on the heels of three months of state-mandated mediation. An entourage of Wall Street bankers, city attorneys, union representatives and other creditors held private meetings in Sacramento to wrangle over Stockton's fate.
The new law guiding such mediation, designed to help forestall municipal bankruptcy or speed recovery if talks fail, guarantees confidentiality as financial cards are laid on the table and blame is analyzed.
But a bankruptcy judge could soon lift the gag order, allowing participants to speak about which entities held out and which bargained in good faith.
Stockton, a port city of close to 300,000 residents, was financially knocked out by a litany of economic circumstances and incompetence or abuse by past city leaders. Its fortunes sank under the foreclosure crisis, unsustainable employee medical benefits and pensions, and ill-conceived waterfront development financed by bonds during the economic boom.
State Controller John Chiang's office is investigating the fiscal practices and record-keeping of the city.
Stockton Vice-Mayor Kathy Mills said the current council's close examination of Stockton's finances revealed a "cesspool."
Hardest hit by the city's bankruptcy will be its municipal retirees. Stockton hopes to reduce a $26-million budget gap by phasing out the city's contribution to a retiree health care program, which required no co-pay and amounts to a $417-million liability.
-- Diana Marcum
Photo: Shuttered businesses dot the landscape around Stockton's port. The city has filed for bankruptcy protection. Credit: Luis Sinco / Los Angeles Times