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Stockton bankruptcy: Southland cities try to avoid similar fate

June 28, 2012 |  5:56 am

City managers in Southern California are casting a wary eye on Stockton, the latest community to head to bankruptcy court, but said they were working hard to avoid what one public policy analyst predicted would be a string of municipal failures.

Facing spiraling labor costs and debt, the Stockton City Council decided late Tuesday night to seek protection under the U.S. Bankruptcy Code and is expected to file with the court as early as Thursday. The council took additional action to reduce costs but still could not close a $26-million budget deficit. It has ordered a stop to bond payments, slashed employee health and retirement benefits and adopted a day-to-day survival budget.

"We've been battling employees, retirees -- it's horrible," Vice Mayor Kathy Miller said of the vote that capped a months-long mediation process that failed to resolve issues among creditors, employees and the city. "They say we're heartless brutes. We're killers. They come in with their children and their grandmothers and their dogs. There are people in wheelchairs. The man with a brain tumor. It hurts.

"But what they don't grasp is they are a relative small minority with really luxurious benefits that outstrip what the average person earns working full time. Those other people stop us in the grocery stores and the coffee shops and say thank you."

Stockton was the first city to follow a path laid out by legislators in AB 506, which requires mediation before a municipality can file for a reorganization of debt. It failed to divert the city of nearly 300,000 from choosing bankruptcy protection.

Other municipal leaders say they don't like what they sense is coming out of the port city but insist their own financial stress does not come close to requiring the course taken by Stockton.

"We are in tremendous pain," John Gross, the finance director of Long Beach, said Wednesday. "Our citizens are feeling the loss of services. But that's a big difference from Stockton."

Miguel Santana, Los Angeles' chief administrative officer, said he sees Stockton as a lesson in what can happen if the city doesn't continue making adjustments to match declining revenue. In a budget outlook prepared in April, Santana alluded to Stockton's financial meltdown in urging the mayor and City Council to push for higher taxes and spending reductions over the next four years.

"Bankruptcy is what you do when you run out of options," Santana said. "We still have a number of options before us. They are just hard."

They include adopting a pension plan for new civilian hires that would set a higher retirement age, partnering with nonprofits to run the city's zoo and cultural centers, and seeking new taxes, Santana said.


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-- Catherine Saillant and Diana Marcum in Stockton

Photo: Weber Street in downtown Stockton, where the city is expected to enter Chaper 9 bankruptcy. Credit: Peter DaSilva / EPA