Monday night was the deadline for the City of Stockton and its 18 largest creditors to reach an agreement that would help stave off bankruptcy. Despite taking all 90 days of the prescribed mediation process, Stockton was gearing up to become the largest municipal bankruptcy in U.S. history.
The road to bankruptcy has been littered with red tape, cuts, and layoffs. The city has overcome $90 million in cuts during the last three years through a number of layoffs, internal borrowing, and pay cuts. However, another $26 million deficit looms starting July 1, and the plan to balance that budget involves suspending payments on loans and bonds, a step wrought with controversy.
Creditors and the city have been negotiating behind closed doors since March, trying to find an equitable solution to the city’s mounting financial troubles. After the housing bubble burst, Stockton went on to be listed among the worst in the country for unemployment, crime rate, and foreclosures. The city had assumed tremendous debts during the boom years, including a new arena and waterfront, and a city hall that has since been repossessed.
From the Associated Press:
Stockton, the California city with the nation’s second-highest foreclosure rate, is facing a moment of decision on whether to become the biggest city to file for bankruptcy, as a deadline for talks between the city and its creditors approached late Monday.
City officials are still hoping to reach a deal that would restructure millions of dollars of debt under a new state mediation law designed to help municipalities avoid bankruptcy, City Manager Bob Deis said.
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