Stockton, California is largest U.S. city ever to file for bankruptcy

SAN FRANCISCO, 28 June 2012 (Reuters) – Stockton, California, became the largest city to file for bankruptcy in U.S. history on Thursday, after years of fiscal mismanagement and a housing market crash left it unable to pay its workers, pensioners and bondholders. The filing by the city of 300,000 people followed three months of confidential talks with its creditors aimed at averting bankruptcy. […] Stockton, which officially declared insolvency and its desire to restructure its debt, also filed a separate list of its major unsecured creditors. The California Public Employees’ Retirement System, which manages Stockton’s pension plan, tops the list. The retirement system has a $147.5 million claim for unfunded pension costs. […] “We are extremely disappointed that we have been unable to avoid bankruptcy,” Mayor Ann Johnston said in a statement. “This is what we must do to get our fiscal house in order and protect the safety and welfare of our citizens.” […] The Chapter 9 bankruptcy filing, a rare event for U.S. municipal debt issuers, was left as the only option to close a deficit of $26 million in Stockton’s budget for its the new fiscal year, according to city officials. The budget approved on Tuesday by Stockton’s city council suspends $10.2 million in debt payments and cuts employee compensation and retiree benefits by $11.2 million to help close the deficit.

About $7 million in savings would come from cutting retiree medical benefits for one year. While the retiree medical benefits will eventually be eliminated, Stockton plans to leave its public pensions unchanged while in bankruptcy proceedings. Attempts to pare them would invite long and expensive challenges. Stockton becomes the nation’s most populous city to file for Chapter 9 bankruptcy. But Jefferson County, Alabama, remains the biggest municipal bankruptcy in terms of debt outstanding, as it had a debt load exceeding $4 billion when it filed in 2011. Stockton has about $700 million in bond debt. Stockton has suffered a sharp drop in revenue since the collapse of its once red-hot housing market, forcing it to cut more than $90 million in spending in recent years.

Stockton, Calif. files for Chapter 9 bankruptcy