Official: Bad money moves, bad luck got Stockton in trouble | News
STOCKTON, CA - Stockton City Manager Bob Deis said Friday morning he'll ask the City Council to take the first step in the bankruptcy process next week.
That first step is entering into a lengthy mediation period with creditors with the goal of reducing what the city owes. If the mediation doesn't succeed, bankruptcy can be declared after that.
"The goal of a bankruptcy lawyer is to avoid bankruptcy. When you're in bankruptcy court, it's more complicated and expensive. If you can work out a deal, you're far better off," said Sacramento attorney Mark Levinson who's been hired by Stockton to assist.
Deis said it was a series of bad financial decisions and bad luck that put Stockton close to the bankruptcy option.
One example was a city council decision made in the early 1990s.
"City employees only had to work one month, then they could retire. The city would pick up their insurance for free for them, for their spouse, for the rest of their lives," said Deis.
To help balance the budget for this year, Stockton would default on some of its interest payments to bond purchasers.
Deis said restructuring its finances was the best option since the city can no longer consider raising taxes, or cutting city services.
In related news, Moody's downgraded Stockton's credit-worthiness Friday to below investment grade.