Stockton, Calif., council to consider Chapter 9-based contingency plan

By Caroline Salls

Pittsburgh, May 31 - The Stockton, Calif., city council will consider a contingency plan on June 5 to be followed if the city and its creditors do not reach an agreement that prevents insolvency and restores the city's fiscal health, according to a news release.

As previously reported, the city and its largest creditors have been engaged in confidential mediation that began two months ago.

The mediation allows the city to work with creditors to restructure debt and agreements under a process determined by state legislation. The legislation provides for a 60-day period of negotiations with an option to extend for an additional 30 days.

The city and most mediation participants recently extended the mediation period through June 25, the release said.

"We remain hopeful that we can reach an agreement with a sufficient number of our creditors to get our fiscal house in order," Mayor Ann Johnston said in the release.

"However, we must have a plan for any possible outcome to protect the health, safety and welfare of our community and maintain basic services.

"Without significant fiscal relief, the general fund will be out of money by June 30, 2012."

According to the release, the state constitution requires cities to adopt a balanced budget by July 1 of each year. The majority of the city's budget is not impacted by the fiscal crisis.

Stockton said the total budget of $521 million includes $366 million in restricted funds, which cannot be used to resolve the general fund crisis. The $155 million general fund provides for police, fire, libraries, parks maintenance and administrative functions.

The city council has addressed $90 million in deficits over the last three years and is faced with a $26 million deficit in the fiscal year that begins July 1.

The city said the contingency plan that the council will consider will allow Stockton to continue to operate should the city be faced with insolvency by the end of the fiscal year, which is June 30.

The proposed plan would give the city manager authority to file for Chapter 9 protection if there are no other options to balance next year's budget.

The plan allows the city to provide day-to-day services until a long-term plan of adjustment can be negotiated and approved if bankruptcy protection becomes necessary.

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