California’s Stockton Said to Plan Default, Bankruptcy Vote

The City Council of Stockton, California, will be asked to vote next week to default on bonds and take the first steps toward bankruptcy, according to a person familiar with the council’s agenda.

City Manager Bob Deis has told council members that he intends to put an item on their agenda for a Feb. 28 meeting that would ask them to approve mediation with creditors as the first step required under a new state law before the city can seek bankruptcy, according to the person, who wasn’t authorized to speak about the matter because it is still confidential.

Deis also will ask the council to agree to stop making payments on municipal bonds beginning March 1, to suspend cash payouts to employees for unused vacation and sick leave, and to begin an investigation into the causes of the city’s fiscal crisis, the person said.

Stockton, an agricultural center of about 292,000, is fighting to avert California’s biggest bankruptcy since Vallejo in 2008. The city has shrunk its payroll, including a quarter of the roughly 425-member police force. Twice since 2010 it has declared a state of fiscal emergency to force cuts on public employees.

Deis and members of the City Council didn’t respond to telephone calls seeking comment today.

Deis scheduled a meeting with reporters tomorrow to “provide background information and answer questions from the media related to the city’s fiscal status,” according to a statement from his office. The briefing at City Hall, which would normally be closed tomorrow, is to prepare for the Feb. 28 meeting, according to the statement.

Outstanding Debt

As of June 2010, Stockton had about $702 million of long-term bond debt outstanding, according to the city’s consolidated annual financial statement. That amount includes both tax-backed debt and revenue bonds. The council will be asked to withhold $2 million of debt service due in March, the person said.

A state law passed last year in response to Vallejo’s bankruptcy requires cities to work with a “neutral evaluator” for at least 60 days before seeking bankruptcy court protection. The process is similar to mediation and gives creditors a right to participate. It can be bypassed if the city declares a fiscal emergency, according to the law.

-- Editors: Pete Young, Ted Bunker