Stockton could be largest city to file for bankruptcy

February 28, 2012 7:43:28 PM PST
Tonight, a Central Valley town may become the largest city in the nation to file for bankruptcy. Stockton has been called the most miserable city in America. It's certainly taken one of the worst beatings from the housing crisis and now it's teetering on financial collapse.

There was a packed house at City Hall Tuesday Night. Stockton has already taken major steps to shore up its finances with layoffs and service cuts. Now, not paying bond holders and maybe even taking steps towards bankruptcy are on the table with tonight's vote.

"We see no viable alternative to restructuring our finances," said City Manager Bob Deis.

The Stockton city manager is pushing the city council to approve a 60-day mediation process with creditors, the first step required under a new state law before any California city can seek bankruptcy. Native Stockton residents like John Engelund hope that doesn't happen because it wouldn't be good for a city that's suffered so much.

"No, it's not at all. It's not at all. It's nothing to be proud of if anybody does that. I think it'd move Stockton further back," said Engelund.

For years, the city of nearly 300,000 people was flush with cash from the housing boom. Among its financial mistakes, the city required only one month of service to be eligible for retiree health benefits for life and generous labor contracts that had hidden costs.

Today, California's 13th largest city that's been dubbed the "most miserable city" in the U.S. twice by Forbes, has the second-highest foreclosure rate in the country behind Las Vegas and city coffers can barely cover the bills.

Insolvency would give Stockton the distinction of becoming the largest American city to file for bankruptcy. Business Owner Douglas Lennard says maybe it's time to wipe the slate clean.

"I think it'll validate the bottom here and verify with everyone that the system here is broken and it's in definite need of repair," said Lennard.

Stockton has twice declared a fiscal emergency that allowed the city to force changes in labor contracts. Among the most noticeable is the paring down officers to only 300, despite ranking 8th in the U.S. for most violent crime per 100,000 residents. The Miracle Mile District has had to hire private security because cops took so long to respond.

"Unless it's an in-progress crime, maybe someone was shot or stabbed, or something like that, the police department has made it very clear, those calls take priority over any cold call that's already happened," said Arnold Chin from the Miracle Mile Improvement District.

The city deficit is about $35 million, but the liability for retiree health benefits is $450 million.


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