Will Stockton, CA Become Largest U.S. City In Bankruptcy?

Will Stockton, CA Become Largest U.S. City In Bankruptcy?

Officials in Stockton, California had until 11:59 p.m. on Monday to reach a deal to restructure the city’s debt to avoid bankruptcy under a new California mediation law. That deadline has passed and, according to the Associated Press, a Stockton spokesperson said what happened in those negotiations was confidential and would not be announced until Tuesday night’s City Council meeting, where members will meet to potentially discuss and vote on a plan to restructure their debt, according to The Fresno Bee. 

If Stockton city officials failed to gain concessions, mainly from public sector employees and their representatives, the city manager will file for Chapter 9 bankruptcy on Wednesday, making Stockton the largest U.S. city to be in bankruptcy. 

According to the Bee, the city already made drastic cuts to the public sector but previous “multi-year labor contracts for city workers with escalating costs and generous retirement plans” prevented the city from digging out of its fiscal hole. 

Another city in California, Vallejo, filed for bankruptcy and is getting back its fiscal solvency by, as Walter Russell Mead has written, ditching the “blue model” of expensive labor contracts and unsustainable pensions.

It is something Stockton should be aware of. But, as Mead has also noted, the time to ditch the “blue model” before the city is a step away from falling off the fiscal cliff.

Photo credit: Otto Vondrak