(Update 2: Since this story's original posting, the Stockton City Council voted 6-1 to authorize its city manager to file a petition seeking protection under Chapter 9 of the U.S. Bankruptcy Code).
Just days after an agreement to extended a state-mandated mediation period provided hope that Stockton, CA could avoid a municipal bankruptcy filing, it appears the option of Chapter 9 could be looming…and as early as next week. It’s a bad sign considering the number of debt-hobbled communities and, now, school districts in the state and throughout the country.
Stockton’s City Council has scheduled a June 5 vote to decide whether the community, through its attorneys/representatives, will file for Chapter 9 protection. Just one week ago, its continued negotiations with creditors under the framework of a 2011 California law mandating mediation periods made it seem like the process was working and a potential template for other communities and states. But as the trite adage goes, what a difference a week makes.
The 2011 California law and its mandated mediation aimed to keep struggling municipalities from hastily entering into a Chapter 9. Mayor Ann Johnston said the extended negotiations meant “creditors understand our fiscal circumstances, and they believe that it is worth the investment of time and resources to work toward a solution.” The impending June 5 vote shakes confidence that enough middle ground can be found between the creditors and the community. If eventually filed, Stockton would unseat Jefferson County, AL as the largest municipal bankruptcy filing in U.S. history.
Meanwhile, a new report out of the state last week noted that at least a dozen of California’s public schools serving more than 2.5 million children do not have enough money to operate properly over the next year. Short of tax hikes, strained budgets and continually shrinking tax bases stung by the recession and the real estate crash could lead a line of schools to eye the same option Stockton community leaders clearly appear to be leaning toward in an attempt to gain breathing room from their creditors.
-Brian Shappell, CBA, NACM staff writer