Stockton residents angered by bankruptcy move

(CBS News) STOCKTON, Calif. - Residents of this northern California city were angered and frustrated by city leaders' decision to set the municipality on track to declare bankruptcy with some going as far to call it "a death sentence."

After failing to reach an 11th-hour deal with its creditors Monday, the city council voted 6-1 late Tuesday night on a pendency plan for a day-to-day operating budget as it moves forward with seeking bankruptcy protection, making it the largest American city to do so, CBS Sacramento station KOVR-TV reports.

"Somebody really dropped the ball," Stockton resident Theresa Fewell told KOVR-TV Wednesday, "and, you know, city leaders, it's just a big mess, and somebody has stirred up the pot the wrong way."

At Tuesday's meeting, dozens more residents voiced their opposition to the bankruptcy move, which would cut health care benefits to retired city workers.

"The pendency plan is a death sentence to some, and to others it's an unavoidable slap in the face," Joni Anderson told city leaders.

"The world is watching, so they can see we are victims of a society that is failing us," another resident said.

"What is wrong with you people?" another asked the council. "Do you even care?"

"You failed," said a fourth resident. "You failed this city, and you failed all of these people."

Stockton was a city with big dreams, CBS News correspondent Ben Tracy reports.

In the mid 2000s, it overhauled its marina, built new parking garages, bought a new city hall and put up a new arena.

The housing market was on fire, and tax revenues were pouring in, so the city took out $190 million in bonds and loans to pay for the projects.

"Everyone was still living high on the hog," said Bradley Koster, who owned a bar downtown. "On Friday and Saturday night, the hockey team played, and we packed the place."

But then the Great Recession came to Stockton. Unemployment is nearly 20 percent, and the foreclosure rate is one of the highest in the nation. Tax revenues have plummeted, and the city faces a $26 million deficit. The bank just took back parking lots and the future city hall.

It's fair to say Stockton was living beyond its means for a long time, said City Manager Bob Deis, "but it was incremental."

Deis said Stockton can't afford its boom-time borrowing because it also has skyrocketing pension costs and city employees who get free health care for life.

Stockton is staring at more than $400 million in unfunded health care liabilities.

"We just don't see it as viable that we could ever pay that off," Deis said.

California state law requires that the city negotiate with its unions, including its police officers, for up to 90 days. There's been no agreement, so now Stockton faces its ultimate Plan B: bankruptcy.

Peter Navarro, a professor of economics at the University of California, Irvine, said there is "a long queue out there of cities like Stockton that are going to be doing the same thing."

Navarro pointed to such cities as Vallejo, Calif., and Central Falls, R.I., which also went bankrupt, largely because of unfunded pensions. Jefferson County, Ala., filed for Chapter 9 protection, sinking in $3 billion worth of debt.

"This is not a story about Stockton," said Navarro. "It's a story about the failure of our national economy, and the reason is simply because we don't make things anymore."

Koster just closed his bar.

"I had loyal people that worked for me for years, and that hurt," he said.

And it's one more business Stockton cannot afford to lose.