Stockton, CA, To Become Largest U.S. City To Declare Bankruptcy

As we mentioned earlier this week, the city of Stockton, Calif., which some consider to be ground zero for the housing market crash, was trying to reach a last-minute deal with creditors to prevent the town from declaring bankruptcy. Unfortunately, those talks failed and Stockton is set to take over the title of Largest U.S. City to Go Bankrupt.

“Unfortunately we have no comprehensive set of agreements with our creditors that would eliminate the deficit and avoid insolvency,” the City Manager announced at a City Council meeting on Tuesday night. “We think Chapter 9 protection is the only choice left. If we get any agreements, those will be honored in Chapter 9.”

In 2007, Stockton was among the first cities to experience massive foreclosures as lenders began to crank up interest rates on all the adjustable-rate mortgages given to subprime lenders in the preceding years. In the course of one year, the foreclosure rate in Stockton jumped from 1-in-157 homes (the 15th-highest rate in the country) to 1-in-27 (the highest rate in the nation at the time).

The rash of foreclosures have led to a huge drop in property tax revenue for the city of around 290,000 residents. The problem has only been compounded by the generous retirement benefits being paid to former city employees. In all, Stockton currently faces a $26 million deficit, reports the AP.

The City Council now needs to begin paying down by slashing the municipal budget. Cuts since 2007 have already eliminated a quarter of Stockton’s police officers, one-third of the fire department, and 40% of all other city employees.

The city say the bankruptcy budget will not make any further cuts to fire and police services.

“The whole purpose of filing Chapter 9 is to avoid an uncontrolled chaotic situation,” said the City Manager. “Bankruptcy provides the equivalent of a pause button. It retains services and provides structure so you don’t have a bunch of lawsuits.”

The AP reports that Bridgeport, CT, has held the title of largest U.S. city to declare bankruptcy since 1991.

Stockton, California to become largest U.S. city to declare bankruptcy [NY Daily News]

Comments

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  1. HomerSimpson says:

    Clearly Obama’s doing!

    /s

    • Marlin says:

      Why the /s ?

      /fox news

      • blogger X says:

        His failed economic policies are the reason this happened.

        /fox news

        • 2 Replies says:

          I’m hungry

          /bacon

        • pythonspam says:

          “In 2007, Stockton was among the first cities to experience massive foreclosures as lenders began to crank up interest rates on all the adjustable-rate mortgages given to subprime lenders in the preceding years.”

          Yep, clearly Obummer’s fault.

          /fox news
          (Not sure if you were trolling, being sarcastic, or serious)

    • spamtasticus says:

      I hope they don’t cut the generous pensions those city employees awarded themselves and their cronies. That would be a travesty.

    • mcgyver210 says:

      I can’t stand the ground this Obama the wannabe dictator walks on but I also can’t blame him for what Stockton, Ca incompetent local Government has done to their city.

      I also don’t blame him for people getting greedy & buying Houses they couldn’t afford.

      But to make it clear OBAMA is destroying what is left of America & its values & needs to be stopped before it is irreversible. Lets start with November even though I am not sure the alternative is allot better he can be removed in a few years if not also.

  2. Coffee says:

    Having lived in northern California, I can tell you that Stockton is the last city in the world that needs cuts to police and fire. Even in the 90s, it was famous for gang violence and generally avoided unless you had a specific reason to be there.

    I vote California christen Stockton with a new name: Little Detroit.

  3. Blueskylaw says:

    I open my bid at $50.00 dollars for both the fire house and police station.

  4. Jane_Gage says:

    Well I never! Thankfully I have tits of my own I can look at in a crisis.

  5. Quirk Sugarplum says:

    In an effort to revitalize their city’s image and bring in much-needed outside funds, officials have announced that they’re changing the city’s official name to “At Least We’re Not Oakland”.

  6. keith4298 says:

    Chapter 9 gives a lot less discretion to the Bankruptcy Judge in terms of selling assets, so this will be interesting.
    /ianal

  7. penuspenuspenus says:

    The Diaz brothers shall be deemed the Stockton Princes shortly.

  8. paperchucker1 says:

    ditto on comcast demanding proof i own my own modem,
    I discontinued my tv service from comcast and returned my 2 cable boxes. along with the modem i was renting from them back in sept, 2011. at the time i returned all the equipment the person i spoke with at comcast told me to just drop the equipment in the drop off box. they never notified my that they were missing any equipment which i stated i was returning. i used zip ties to all pieces so if they received 1 piece they received all, 2 digital boxes 2 remotes and 1 modem.
    as i was walking up to the return box the 2 employees that empty the box came out with cart to empty it. which was good because they would not have fit into the box.
    i received a call from customer service 3 months later asking what they could do to get me back on tv with them. i told them not interested. i asked why my bill was higher than i was quoted when i dropped tv. she said i have basic internet with a modem. i explained i returned the modem. i received credit from comcast for 1 month service for there mistake.
    now i canceled there service today!!!!
    they demand i go down to there office and show proof i return the modem.
    they are out of there flicking minds.
    they can do what ever they like but i told them they need to check there records as it is there mistake not mine.
    do they not have the technology to check if they box i claim to have returned was not in use.
    can they not check if one of there employees is either using said box or sold said box and someone else is using.
    why after having them disconnect my service 3 times in error because of issues at there office, must i take my time to provide proof i do not have there equipment. they have all the notes on all there credits they have issued to my account for all there errors.
    if they check there flicking notes they will see where they issued credit to me for this issue already.
    COMCAST is to big for there Flicking Own Good.
    Pissed over fraudulent charges COMCAST wishes to issue to FORMER customer.
    greg

  9. kella says:

    This is a perfect example of why cities shouldn’t give in to public unions even during ‘fat’ times, they don’t last long and everyone ends up much worse off in the long run. Union employees would probably be better off with a 401(k) system like is used in the private sector. At least that way the money is yours, and the risks can be spread out rather than being tied to the fortunes of one city.

    • pythonspam says:

      When they start paying public sector employees comparable salaries as private sector employees for comparable jobs, I would agree that benefits such as 401k/pensions and health care should be equitable.
      However, I have not seen any data to suggest that public sector workers (unionized or otherwise) wages are on par with (or higher than) someone working in the private sector (performing the same duties and with the same qualifications including education level.)
      I’m currently digging into this report:
      http://www.fas.org/sgp/crs/misc/R41897.pdf

  10. Torchwood says:

    Hmmmm…. I guess the City of Stockton is not too big to fail.

  11. gman863 says:

    I wonder what the “trickle down” effect will be to investment funds and direct boldholders who invested in Stockton as part of their retirement income.

    • Duke_Newcombe-Making children and adults as fat as pigs says:

      They get a section of Wilson Way, and a piece of the action from the working girls on it.

      • VeiledThreats says:

        Someone lives or lived in Stockton!

        This place is a shithole. The bankruptcy doesn’t surprise me. 34 homicides as of yesterday for 2012 and steadily climbing and they’re cutting police pay 20%. Packing my bags…

  12. jasonq says:

    You misspelled “Cleveland.”

  13. PragmaticGuy says:

    I could see why Bridgeport failed. I was there many years ago, stayed overnight at a Holiday Inn where the manager told us, “don’t go out after dark.” And we were on a main street. Was kind of frightening. I guess that’s why the J’ai Alai moved out. Used to be a big attraction. People must have been afraid to go and that was just one of the reasons for the city’s downfall.

  14. Revolverkiller says:

    Stockton changes name to: “At Least We’re Not Detroit!”

  15. Vox Republica says:

    In a fairly clever revenue-generating measure, the City of Ockton sold 25% of their name to similarly renamed Nashvillest, Tennessee, as part of their The Most Nashville City In America tourism campaign. Further talks are currently in motion between Ockton and food company Nabisco as part of a multi-billion dollar Newton Orleans sponsorship proposal that may come to fruition, in the words of one Ockton lawmaker, “surprisingly soon.”

  16. lovemypets00 - You'll need to forgive me, my social filter has cracked. says:

    Next up, Harrisburg, PA – probably the first state capital to declare bankruptcy. There’s a law in place preventing it from filing federal bankruptcy that expires June 30. Another proud PA moment.

  17. rtb61 says:

    With only limited details on how the debt was accrued, blaming it on pensions is meaningless and just typical right wing politics. Pensions really are just deferred salaries, putting current costs off to a future date.
    No information on how much they own to whom and for what that money was borrowed, as for foreclosures what difference does that make, the Banks that took over the homes still have to pay taxes, so it just seems to be a cover put out by mass media to hide the real causes of debt.
    Something really odd is going on here.