In the News: Stockton and Mediation – Near the End of the Rope?

 

Stockton Positions Itself to Be Able to End Mediation and File for Chapter 9 Protection From Its Creditors

     We blogged on May 30, April 8, and March 11, 2012, about the efforts of California cities in financial distress to comply with AB 506 by mediating as a precondition to filing for bankruptcy.

     Stockton is Exhibit 1.  The city has been battered by an alignment of unfortunate events:  the mortgage foreclosure crisis, the loss of tax revenues, and ambitious projects leaving it financially overextended.  The city has the second-highest foreclosure rate in the nation.  If Stockton does declare bankruptcy, it will become the most populous city in the country to have done so.

     On June 6, 2012, the City Council authorized the City Manager to file for Ch. 9 protection from creditors.  The vote immediately triggered a debt downgrade by Fitch Ratings. 

     A flurry of articles appeared on June 6, 2012, signaling the mediation process is approaching an end:  (1) Diana Marcum’s article in the Los Angeles Times, “Stockton moves another step closer to bankruptcy”; (2) Reuters, “Fitch downgrades $252 mln of Stockton, Calif., Debt”, (3) Associated Press, “Stockton officials ready bankruptcy plan,” and (4) Scott Smith, Stockton Record, “Council gives Deis Chap. 9 authority.”

     Mediation continues to June 25, 2012, with the city manager authorized to file for Ch. 9 protection the next day.  

      Blawg Bonus:  photograph taken by Dorothea Lange in Stockton in December 1938 during the Depression:

  

Farm woman, Stockton, California.  Tenant Purchase applicant.