Stockton, CA will file for bankruptcy
Astonishing. Stockton, California, a city of 300,000 people, has gone flat broke.
A Chapter 9 bankruptcy by the city of nearly 300,000 in California's Central Valley, about 85 miles east of San Francisco, could come as early as Wednesday.
Stockton's city council voted six to one in favor of the 2012-2013 budget after a contentious five-hour meeting where angry retired city workers pressed council members to reject the $155 million spending plan. It proposes eliminating retirees' medical benefits to help fill a $26 million budget deficit.
Retired police department employee Geri Ridge said she fears not being able to afford health-care insurance.
"I don't have that kind of income," said Ridge, 56, noting she is concerned a large share of her $1,895 monthly pension payment could be consumed by large insurance costs due to her history of heart attacks.
The council's vote followed three months of confidential talks between Stockton and its creditors aimed at averting bankruptcy. The negotiations ended on Monday with the city failing to win enough concessions to help close its shortfall for the fiscal year starting on July 1.
That left bankruptcy as the only way for Stockton to balance its budget in the near term while maintaining its current level of services and bringing stability to its battered finances, Mayor Ann Johnston said.
"It's heart-wrenching to think about the implications," she said. "I see no other solution."
Stockton officials have said since February their city's finances are suffering the combined effects of fiscal mismanagement over two decades, too much debt taken on in good times and generous pay and unsustainable benefits for city employees and retirees.
It's by no means clear that Stockton could have avoided bankruptcy if it had reformed its employee pension and health care funds. But it certainly wouldn't have hurt and the fact that there are dozens of towns in the US who keep kicking the can down the road, hoping the situation fixes itself means there are going to be more Stocktons to deal with in the future.