Before declaring bankruptcy, and perhaps as a way to avoid it, cities have to avail themselves of the AB 506 process. It isn’t a perfect process, and according to a recent paper, its holes make it a difficult process to navigate.
The 21-page white paper outlines many of the opportunities presented by the mediation process, as well as some of the pitfalls. In the case of Stockton, the city authorized $3 million for the AB 506 process, but was unable to avoid bankruptcy. Bankruptcy itself will cost about $3.5 million more initially.
However, what the AB 506 process did allow the city to do was to begin working on its bankruptcy plan, which could save time and money during the full Chapter 9 process.
From the Record Net:
Pre-bankruptcy mediation, a course Stockton has been following for the past three months, saddled those involved with a Herculean task and, at best, set up City Hall for a shorter bankruptcy.
Those are two key findings in a 21-page white paper sizing up the pluses and minuses of the pre-bankruptcy mediation process under AB506, a new state law Stockton was first to test.
Read the full article here.