Stockton City Council approves contingency plan | News

STOCKTON, CA - The Stockton City Council voted to approve a contingency plan that will give its city mnger authority to declare bankruptcy if negotiations with creditors fail and the city remains insolvent.

The council's 6-1 vote late Tuesday comes as the river port city of 290,000 continues to negotiate to restructure its debt under a new state law designed to help municipalities avoid bankruptcy; Councilmember Dale Fritchen was the only dissenting.

The City of Stockton decided to proceed with the bankruptcy process in the end of February. Because of AB 506, a city that wants to file for bankruptcy has to enter into a 60-day mediation process with creditors in order to come up with a plan to avoid bankruptcy. In May, the city and creditors decided to extend the mediation process for another 30 days.

"We're on a tight timeline," city spokesperson Connie Cochran said. "Mediation will not complete until June 25. And we have to have a budget by July 1. [Tuesday] evening the city manager is seeking authority from the council to prepare a contingency plan."

The contingency plan discussed at Tuesday's meeting would give City Manager Bob Deis the authority to file for Chapter 9 protection and allow the city to operate daily services.

The city's attorneys said it already started the paperwork to file for bankruptcy, because the deadline is so tight and filing is a long process. Lawyers and consultants stood before the council and said if negotiations with creditors fall through, bankruptcy is the city's only option.

There was tension between Fritchen and other council members as he pressed the council for information on how much will filing for bankruptcy will cost the City of Stockton.

A city attorney said, "I don't have a reliable estimate."

Deis said money for bankruptcy lawyers will come from the "pendency plan" he has yet to deliver. Fritchen pressed, "so we don't know where?"

"I'm pretty sure were going to be in bankruptcy in a few weeks. I wanted to wait till mediation was over," Fritchen said. "We are supposed to be negotiating in good faith, not declaring we'll file bankruptcy in the middle of it. That's not negotiating in good faith."

Stockton could legally file for bankruptcy on June 26; in early September, the city would be eligible for Chapter 9, which would re-organize the city's structure.

The attorneys said filing for bankruptcy doesn't raise property taxes or create new revenue and will have to restructure the city.

City consultants said the city will pay more health benefits for retirees than for current employees; those costs are expected to double.

Stockton city advisors told the city council said the city will not be able to balance a budget without creditors' support; unrestricted funds to balance the budget will not materialize.

"Bankruptcy gives you time to catch your breath...prevents seizure of assets and protects from lawsuits," advisors told the city council.

Stockton resident Gary Malloy said it is "disturbing" that the public does not get to give input before the budget/bankruptcy deadline.

Last week, Well Fargo repossessed the Washington Mutual Building on Main Street, which was going to be the location of a new city hall, and three parking garages in April when the city defaulted on three bond payments.