Stockton, Calif. on Verge of Bankruptcy

February 29, 2012

ANCHOR: More bad news for the economically hard-hit state of California. The city of Stockton is moving one step closer to a possible bankruptcy. Sandra Smith has been looking into this. I guess it’s no surprise--northern California city, Sandra, it’s a very industrial town. Not a surprise, but still, it’s rough to see, especially for California bondholders.

SMITH: This is rough, and this a very a big city to see this happening. Stockton is moving closer to that bankruptcy, with city council vote to default on some of its bonds and begin a process, required under state law, prior to seeking court protection. The council voted six to one yesterday to enter mediation with its biggest creditors, such as bond insurers and the labor unions to seek concessions aimed at helping this community of 292,000 people to avoid becoming the largest U.S. city by population to ever enter into bankruptcy. The mayor of the city, saying, "We are working to avoid the ultimate bankruptcy, but it doesn’t look good." Mayor Ann Johnston went on to say, "If the players don’t agree to a fix everybody can live with we are in trouble because then we have no more choices left." Stockton is a farming center about 55 miles south of Sacramento and it has fought to avert this court ruling, but rising employment costs such as retiree health care benefits, as well as debt that’s tied to economic growth that consumed larger amounts of the city’s general fund while the local economy has not recovered from recession. That’s really key—it’s just the timing of all this, while that state continues to get their problems under control.

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