The City Council of Stockton, about 15 miles to Tracy’s northeast, could vote this evening to move toward a Chapter 9 filing in an effort to relieve itself of bond payments and employee benefits that city management says are crippling the city’s financial position.
“The city of Stockton has reached a turning point in its history,” wrote Stockton City Manager Bob Deis in the agenda for the meeting scheduled for 5:30 p.m. “During the past two years, it has become clear that past weak financial management practices concealed problems with inaccurate asset values and understated liabilities in the city’s balance sheets.”
Deis also wrote that unsupportable levels of employee compensation were negotiated by past city leaders and approved by past councils.
Stockton, with a 2010 U.S. Census population of 291,000, would become the nation’s largest city to move toward bankruptcy. Vallejo, in the San Francisco Bay Area, declared bankruptcy in 2008.
The Tuesday decision would not formally begin bankruptcy, however. The vote would only approve a plan to cover daily expenses while the city goes forward with the bankruptcy process.
Mediated meetings between Stockton and its creditors apparently failed to reach a non-bankruptcy solution, as the 90-day period for such talks ended Monday without any announced resolution.
The discussions were mandated by Assembly Bill 506, a law seeking to give cities and their creditors a way out of dire financial straits without bankruptcy. Stockton is the first city in California to undergo the mediation.
Stockton faces a 2012-13 fiscal year deficit of $26 million from its $155 million general fund, according to city documents. Deis maintains that Stockton simply cannot endure a fourth straight year of multimillion-dollar deficits combined with a $417 million unfunded employee health care liability.
“We have tried everything, including negotiating or imposing massive compensation reductions, the likes of which you cannot find in this state,” Deis wrote to the council.
The city has trimmed $90 million from its general fund since the 2009-10 fiscal year, according to officials there, including layoffs to one-third of the fire department staff and one quarter of the police department.
Deis wrote in a letter to city-contracted vendors that Stockton “cannot and will not” use any of the $366 million of restricted funds in its budget — such as money for water, sewage and garbage services — to solve the general fund crisis.
As part of the proposed solution, Stockton will stop payment on $12 million worth of bonds and begin the process of eliminating health care benefits for retirees. Deis promised that the city would not stop paying people and businesses it contracts with for goods and services.
Leaders in Tracy and elsewhere in the county don’t expect the county seat’s problems to trickle south on Interstate 5, though bankruptcy could tarnish the overall image of the region when it comes to landing prospective businesses.
“The only impact is to the degree Tracy is included in the Stockton metro area, so when site selectors and developers looks us up, we have some explaining to do,” said Tracy City Manager Leon Churchill. “But that’s a modest impact.
Churchill said the biggest impact for Tracy is to learn from Stockton’s financial missteps. That includes, he said, employee costs and a downtown waterfront built by Stockton in the hopes to create a new economic engine that never materialized.
“We have to be aware of our labor costs, we have to be aware of major capital investment and their future costs,” Churchill said, suggesting any future projects built by the city must be carefully considered.
“We should be aware,” Churchill said, “and we should learn from others.”