Stockton, CA Set to Become Largest City in U.S. to Declare BankruptcySubmitted by go213mph on Thu, 06/28/2012 - 17:02
The city of Stockton failed to reach a deal with its creditors Tuesday, setting the stage for the largest U.S. municipal bankruptcy in history.
The Stockton City Council voted 6-1 Tuesday night to halt bond payments, whack its employee health and retirement benefits and move forward with bankruptcy proceedings as City Manager Bob Deis said, “We think Chapter 9 is the only choice left.”
The city had been participating in a mediation process since March dictated by a new California law, AB 506, that sets the terms for municipal bankruptcy. Stockton, a city of almost 300,000, has been mired in debt since the economic bust in 2008 left it with the nation’s second-highest foreclosure rate and second-highest rate of violent crime in the state. It has been trying to plug an anticipated $26 million budget hole.
A number of questions still remain as to what course Stockton will follow and what its bankruptcy might mean for other beleaguered communities as anxious public pension trustees and bondholders look on. State and local governments have $3 trillion in municipal securities outstanding, with an estimated $1 trillion of this being general obligation debt. State and local pension systems also have estimated unfunded liabilities as high as $2 trillion.