AB 506 gives a city and its creditors 60 days to restructure finances – 90 days if necessary. In Stockton, the first city to enter into the process, parties agreed that 30 additional days could be helpful.

The city and its creditors now face a deadline of June 25 to address the financial crisis and stave-off insolvency or bankruptcy.

“This is a good sign,” said Mayor Ann Johnston in a statement released Monday. “It means that our creditors understand our fiscal circumstances and it indicates that they believe that it is worth the investment of time and resources to work toward a solution.”

The city entered into the AB 506 process in February to address severe crisis in its General Fund – roughly $155 million of the city’s $521 million budget.

The mediation in Stockton was the first real-world test of the new bankruptcy-avoidance process. It brought together 18 creditors all of whom had more than $5 million in debt with the city. The creditors range from banks to financial advisors, CalPERS and labor unions. Together and in under strict confidentiality rules, they are working to stabilize the city’s finances and help them avoid bankruptcy court.

Meanwhile, the Assembly continues to leave a bill pending before the main legislative body that would undo many of the provisions gave Stockton hope of finding a resolution in mediation.