Good news for the people of Stockton—shortly, in thirty days, the city will be allowed to admit what the banks and vendors to the city know—Stockton is so broke, it can not pay its bills.
Wells Fargo may wind up owning most of the city facilities. It has already repossessed parking lots paid for with bonds the city defaulted on. Now, the city has defaulted on the bonds that paid for the new City Hall.
“But perhaps foreshadowing the bankruptcy, Wells Fargo Bank has taken possession of an eight-story downtown building that was to become the new city hall. The city sold $41 million in bonds to buy the former Washington Mutual building. But it has not had the money to move more than the city’s IT department to the structure.”
So far, $75 million in bonds have been defaulted. If the unions were not so greedy, the city could have protected its assets—sadly the union is also destroying the future of this city. Just look for the union label on the defaulted bonds.
Central Valley Business Times, 5/31/12
• Wells Fargo seizes the future city hall
• Council to consider plan if talks with creditors fail
The city of Stockton is closer to bankruptcy than ever, with city officials saying a “contingency plan” will be considered next week to keep basic functions operating if the Central Valley city declares bankruptcy.
If it does, Stockton would be the largest city in the nation to go bust from the Great Recession.
“This city has been in business for over 160 years and we will continue to be in business,” says Mayor Ann Johnston in a written statement Wednesday evening.
Stockton City Council at its June 5 meeting will consider a contingency plan to be followed should the city and a sufficient number of its creditors be unsuccessful in reaching an agreement that prevents insolvency.
Banks holding city bonds and retired city employees are among the major creditors.
The city and its largest creditors have been engaged in confidential mediation that began two months ago. The mediation under a state law that went into effect this year allows Stockton to work with creditors to restructure debt. 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.
But perhaps foreshadowing the bankruptcy, Wells Fargo Bank has taken possession of an eight-story downtown building that was to become the new city hall. The city sold $41 million in bonds to buy the former Washington Mutual building. But it has not had the money to move more than the city’s IT department to the structure.
The bank, citing a skipped payment of $197,280 in April has taken ownership.
Wells Fargo now owns four major city buildings in Stockton, caused by earlier defaults on other bonds. In addition to the would-be city hall, the bank owns three recently built parking garages.
“We remain hopeful that we can reach an agreement with a sufficient number of our creditors to get our fiscal house in order,” says Ms. Johnston. “However, we must have a plan for any possible outcome to protect the health, safety and welfare of our community and maintain basic services.”
The city’s general fund will be broke by the end of June unless the creditors grant relief.
The mediation law also essentially puts the ducks in a row for the city to let it file almost immediately for bankruptcy if the negotiations don’t work out.
The majority of Stockton’s budget is not impacted by the city’s fiscal crisis, the mayor says. The total budget of $521 million includes $366 million in restricted funds, which cannot be used to resolve the General Fund shortfall. The $155 million General Fund provides for services such as police, fire, libraries, parks maintenance and administrative functions.
This funding comes from property tax, sales tax, utility users tax, business license tax and other sources, all of which have experienced significant declines for the past four years.
The city also is faced with a $26 million deficit in the fiscal year that begins July 1. The Council believes that any further service cuts will endanger the health and safety of the community and its members say they will not increase any taxes.
The plan expected to be approved next Tuesday would give the city manager the authority to file for Chapter 9 bankruptcy protection if there are no other options to balance next year’s budget.