Stockton Approves Sales-Tax Hike to Ease Bankruptcy Exit

Voters in Stockton, California, the biggest U.S. city to file for bankruptcy after Detroit, approved a proposed sales-tax increase that’s a key part of its plan to become solvent.

Stockton residents voted 53 percent in favor of a ballot measure to raise the city’s sales tax to 9 percent to generate about $28 million annually, which would go toward exiting bankruptcy, restoring city services and paying for law enforcement.

“This is the last step that’s going to get us out of bankruptcy and really help Stockton move into recovery mode,” Kathy Miller, a Stockton council member, said in a telephone interview ahead of the vote.

The city of 296,000, an agricultural center about 80 miles (130 kilometers) east of San Francisco, filed for bankruptcy last year after city employee retiree costs, the housing bust and accounting blunders drained its coffers. The three-quarter cent tax increase proposal, known as Measure A, is part of a bankruptcy exit plan the Stockton City Council approved on Oct. 3 and filed with the bankruptcy court on Oct. 10.

“The alternative would be brutal, consisting of approximately $11 million in more service cuts,” triggering the elimination of the city’s library system, community center programs and an additional 14 percent cut in the fire department, according to a report prepared for the Oct. 3 city council meeting.

Losing Control

The failure of the tax increase would have likely resulted in a loss of control over the city’s arena, some public parks and golf courses, the report said.

The city’s sales tax is currently 8.25 percent. The increase will go into effect on April 1.

The additional tax will expire after 10 years, and the city council could reduce or eliminate it based on the city’s economic recovery, according to the city attorney’s analysis posted on the city’s website.

Stockton’s bankruptcy plan also calls for paying some creditors less than they are owed while maintaining its pension obligations to city employees.

To contact the reporter on this story: Alison Vekshin in San Francisco at avekshin@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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