Judge: Stockton can go ahead with bankruptcy | News
SACRAMENTO, CA - A federal bankruptcy judge in Sacramento has ruled in favor of the city of Stockton, saying it can gain relief through Chapter 9 bankruptcy.
City Manager Bob Deis said after court there was no reason to celebrate, and that the city had spent millions already in court and attorneys' fees just trying to prove it was insolvent, or unable to pay its debts.
"What we should have been going today is confirming a bankruptcy exit plan, a plan of adjustment. Instead we just finished the first chapter of a two-chapter book," said Deis.
Now Stockton will develop a plan of adjustment in which it hopes to reach agreement with the various creditors it just fought with in court. In those negotiations, the city hopes creditors will see there's a limited amount of money available to Stockton, and accept far smaller payments.
U.S. Bankruptcy Court Judge Christopher Klein spent nearly two hours explaining his findings Monday after hearing testimony last week for three days.
In that trial, Stockton tried to prove it had no way to make any more cuts to the city's budget. It attributed its financial woes to a 50 percent decrease in property values, plummeting sales and tax revenues, and generous health care benefits for workers. It trimmed staff by 25 percent to help counter-act shrinking revenues.
Creditors tried to show Stockton could have done more to raise taxes or sell off assets such as buildings or property.
"We will start reaching out to the creditors to avoid the fight that the judge sees coming. There's no reason why agreements can't be reached. We believe we demonstrated in court through unvarnished evidence, the insolvency of the city," said bankruptcy attorney Marc Levinson.