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Stockton could follow Vallejo's lead and file for bankruptcy

1:42 PM, Feb 24, 2012   |    comments
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STOCKTON, CA - The city of Stockton is expected to take its first step toward filing for bankruptcy when the city council meets next Tuesday.

Sources said Wednesday afternoon that a discussion is underway and council members are expected to vote at the next meeting.

RELATED STORY: Sources say Stockton will start process to file for bankruptcy

If Stockton follows through with bankruptcy proceedings, it will follow in the footsteps of the city of Vallejo, which declared bankruptcy in 2008. At that time, attorney Mark Levinson, with Orrick, Herrington and Sutcliff LLP, represented Vallejo in its bankruptcy proceeding. Levinson would not comment Thursday regarding Vallejo's bankruptcy nor would he talk about Stockton's situation.

Assem. Bob Wieckowski wrote a new law (AB506) that requires cities to go through 60 days of mediation with its creditors before entering bankruptcy. The law passed last year and was backed by the California Labor Federation.

RELATED STORY: Stockton bankruptcy move opposed by councilman

If Stockton files for Chapter 9 bankruptcy protection, it would be the largest city to file for bankruptcy in the country. Orange County declared bankruptcy in 1994; Vallejo filed for bankruptcy in 2008 and just emerged last year.

Vallejo Assistant City Manager Craig Whittom said Vallejo entered bankruptcy after considering other options.

"It allowed us to reorganize our labor agreements, reduce certain costs, and also engage with our debt creditors to reorganize our debt obligations. We were able to present a plan to the bankruptcy court judge and we were able to emerge from bankruptcy in November 2011," Whittom said Wednesday night. "We wished we were not in a position to have to use the bankruptcy tool. But it was an effective tool to allow us to reorganize and emerge from bankruptcy in a more stable financial condition."

According to the National League of Cities, city bankruptcy filings are rare. Two dozen states do not allow cities to file for bankruptcy; other states allow for bankruptcy filings, but regulate it.

READ MORE: State policies on filing for bankruptcy

As for Stockton, California Treasurer Bill Lockyer issued the following statement:

"We're monitoring the situation closely. Bankruptcy does more than inflict long-term harm on the community. The reputational stain can bleed onto other local issuers and the State, and that can hurt taxpayers in the bond market. So we hope a Chapter 9 filing is not the final outcome."


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