The California Public Employees’ Retirement System, the largest U.S. public pension, and Wells Fargo & Co. are among 18 creditors that have agreed to mediation with Stockton, California, as the city makes a last-ditch effort to avert bankruptcy.
Creditors with at least $5 million in debt taking part in the talks also include Union Bank NA, National Public Finance Guarantee Corp. and a New York unit of Brussels-based Dexia SA, according to a statement e-mailed by Stockton yesterday.
“The city and interested parties will select a mediator with the goal of reaching an agreement on how to manage these city debt obligations,” Stockton said in the statement.
The City Council agreed Feb. 28 to trigger a new state law aimed at helping cities avert bankruptcy by requiring municipalities to meet a set of hurdles that include negotiations with creditors for at least 60 days before they can file for Chapter 9 bankruptcy protection.
Stockton, about 80 miles (130 kilometers) east of San Francisco, is nearing insolvency because of escalating retiree costs, accounting errors and the lingering effects of the recession, City Manager Bob Deis said last month.
While the mediation is confidential under state law, the participants agreed to be identified and to make public the name of the mediator once one is selected, according to the statement.
“The process gives municipalities that are in fiscal distress an opportunity for financial restructuring, not unlike what goes on in the private sector,” according to the statement. “The city has not declared bankruptcy.”
Unions Take Part
The police, fire and city employee unions and the U.S. Housing and Urban Development Department have also said they will take part.
“Calpers is committed to both protect the vested rights of our members to the pensions they have earned through a lifetime of public service and to assist our employers with the pension obligations they must meet,” Anne Stausboll, Calpers’ chief executive officer, said today in a statement.
Elise Wilkinson, a spokeswoman for San Francisco-based Wells Fargo, the fourth-largest U.S. bank by assets, declined to comment on the mediation.
Jane Yedinak, a spokeswoman for Union Bank, declined to comment. Union Bank is a unit of San Francisco-based UnionBanCal Corp., part of Mitsubishi UFJ Financial Group Inc., Japan’s largest publicly traded bank.
The Stockton Police Officers’ Association, one of the creditors that agreed to mediation, asked a county judge yesterday to prevent the city from suspending compensation to retiring workers for unused vacation and accumulated sick leave. The union said that the city is contractually obligated to make the payments.
The city in legal filings told the court that it had more than $1 million in claims pending for those payouts, while it only has $358,859 budgeted to pay them. Deputy Mayor Kathy Miller said making those payments could push Stockton into bankruptcy before the mediation process is concluded.
“Our cash flow is already precarious and that could force us into an uncontrolled insolvency,” she said in a telephone interview.
A San Joaquin County Superior Court judge didn’t immediately grant the union’s request and has scheduled a hearing on the matter next month.