Stockton Finally Granted Bankruptcy

A 70 percent decline in the city's tax base, the result of home foreclosures, has left Stockton, Calif. nearly $1 billion in debt.
Photo: Stockton City Hall

For months people have kept an eye on Stockton, California's insolvency, predicting the city of 300,000 would become the largest U.S. to declare bankruptcy. The city's budget and services had been cut to the bare minimum. Creditors hoped to keep Stockton out of bankruptcy, fearing this final solution would allow the city to avoid repaying its debts in full. However, on April Fool's Day it was no joking matter when U.S. Bankruptcy Judge Christopher Klein accepted Stockton's bankruptcy declaration to assure continuance of basic city services.

The Chapter 9 bankruptcy is the direct result of the massive home foreclosures that began in the mid-2000s, culminating in a 70 percent decline in the city's tax base. By 2009, Stockton was nearly $1 billion in debt, the result of civic improvements, money owed to pay pension contributions, and the health care coverage for life for all city retirees, which includes coverage for a dependent.

Stockton's largest debt is the $900 million in pensions it owes the California Public Employees' Retirement System. Thus far, Stockton has kept up with pension payments.

The most aggressive creditors are the bond insurers who guaranteed $165 million in loans the city secured in 2007 to pay its contributions to the CalPERS pension fund.