Stockton In Final Hours Of Mediation As Bankruptcy Looms
STOCKTON (CBS13) - Stockton city officials were expected to meet with their creditors well into the night Monday in an effort to avoid bankruptcy as their window for mediation expires at midnight.
If Stockton does file for Chapter 9 bankruptcy protection, it will be the largest city in the nation to do so.
CBS13 spoke to an attorney who was part of the Vallejo Chapter 9 bankruptcy negotiations in 2008, and he knows firsthand the difficult decision Stockton will soon be making.
"Sometimes people, a company, and in this case a city, gets forced into it," Dale Ginter said.
Despite hours and hours of negotiations, Ginter says the city will be left with that one inevitable option.
"I think that if there were a deal in the offing between now and tomorrow, I think we would have already known about it or have some inkling that they were just about on the verge of a deal," he said. "In the absence of a creditor agreement with its creditors that saves it $26 million, I think the city virtually has to file Chapter 9 bankruptcy."
Stockton was the first city to test the new state mediation law, Assembly Bill 506, which is less than six months old. Under the law, municipalities considering bankruptcy must first negotiate behind closed doors with creditors for up to three months, with the goal of settling debts without filing for Chapter 9 protection.
Ginter expects the city to file sometime this week. That will block all lawsuits from creditors looking to collect the $26 million the city owes. The City Council has to approve a balanced budget by July 1. The city could file for bankruptcy as soon as Wednesday.
And Tuesday, the City Council will most likely pass a pendency plan, a budget alternative that will leave the $26 million unpaid as the city prepares to file for bankruptcy.
"It identifies our spending priorities, which means we will still have police officers on the street. We will still have firefighters responding to emergencies," Vice Mayor Kathy Miller said.
The plan would restructure how the city pays back loans to its creditors and it would cut retiree medical benefits.
"They'll save about $9 million a year by not paying retiree health care. They are saving about $11 million in cash, pursuant to their pendency plan, by not paying debt service," Ginter said.
But getting rid of retiree health benefits has some former workers worried sick.
"I'm really scared. I don't know what we are going to do," Joni Anderson said.
Anderson and her husband Mark both have retired medical benefits. It covers their 18-year-old daughter Taylor, who was born with a congenital heart defect. She's already had four open-heart surgeries.
And if the city files for bankruptcy and approves the pendency plan, in just a matter of days, Taylor won't have any health coverage.
"As a mother, I'm terrified," Joni said. "It's my worst failure in life not to be able to provide for my child."
Joni and Mark spent Monday looking for insurance providers, realizing they'll spent at least $600 dollars a month just to get Taylor a basic health plan.
It's a price they're willing to pay, putting their daughter's health before their own.
"Yes, I'm scared," Mark said. "I'm scared what's going to happen to us and God forbid we have any medical issues because we are probably going to have to go without medical."
