In what is being called the largest bankruptcy to be filed by a municipality in American history, Stockton, California seeks bankruptcy protection after years of deep debt woes and inability to pay city workers. The City of Stockton has been facing several challenges that led to the filing including mismanagement of funds, crash of the housing market and insufficient funding for bondholders and pensions.
With roughly 300,000 citizens, Stockton tried to negotiate financial issues with their creditors before filing bankruptcy. The city claimed insolvency while voluntarily filing their Chapter 9 petition; allowing the city to legally restructure debt. According to Reuters, the city submitted a list of major unsecured creditors with outstanding debt amounts totaling near half a billion. One of their top creditors, the California Public Employees Retirement System, has a claim against the city for almost $148 million. Stockton also owes over $124 million toward pension obligation bonds and close to $32 million for parking garage debt.
The city was working on negotiations to help settle a deficit of $26 million for next year. Earlier reports claim the city sought bankruptcy protection in 2008. The filing will allow for special budgeting to suspend debt payments. The protection also helps lower retiree medical benefits while working to increase revenue for the city through several measures including parking citations. City officials will have control over day-to-day operations but a judge will have control over decisions regarding Stockton's debt. The judge will decide creditors who should receive payment and funds needed to help the city function.