Stockton, CA Enters Confidential Debt Mediation
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Stockton, CA, Enters Confidential Debt Mediation

March 12, 2012

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After nearly a week of public speculation about its financial future, Stockton, California, has officially entered confidential debt mediation intended to help the city find a debt-elimination alternative to bankruptcy, according to reports from Recordnet.com.

A housing boom hot spot, Stockton was among the hardest hit by the collapse of the real estate market in 2007 and 2008. Now the city is in dire financial straits and is apparently looking for a way out of its debt that does not involve a Chapter 9 bankruptcy filing.

Negotiations between the city and its unions, retirees, and major creditors have been announced and will remain free from public scrutiny for at least 60 to 90 days, sources report. It seems that, free from need to “tout the party line” for public audiences, all parties to the negotiations are more likely to negotiate with the honest intention of solving the problems associated with the city’s debt.

City Council Introduces Preliminary Plan

At the urging of Bob Deis, Stockton’s city manager, the City Council has reportedly approved a plan that will postpone payment on certain debts and extend the city’s state of fiscal emergency for another year (it has already been in such a state for two years).

The City Council also agreed to enter negotiation, and has apparently designated $3.5 million to cover the costs associated with the process of mediation. Those costs are likely to include the fees for the mediator, the city’s bankruptcy lawyers, and legal representation for certain creditors and other parties invested in the case.

A recently passed California law requires cities to engage in a period of neutral negotiation before actually entering the protection of the bankruptcy court. Stockton, it seems, will be the first municipality to put the law into practice.

Too Many Cuts Already

Whether or not Stockton ultimately ends up in bankruptcy, it is clear that the city needs a change of direction in order to survive. It has already cut roughly a quarter of its police force and has run a deficit in the tens of millions of dollars for two consecutive years.

Deis has apparently blamed the retirement benefits offered to city employees for costing too much money and providing too little in return. If Stockton’s negotiations proceed anything like Vallejo’s recent bankruptcy did, chances are that such benefits will be reduced significantly.


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