stockton BK, here we come

[Coronita]

http://finance.yahoo.com/news/stockton-california-bankruptcy-budget-plan-095727860.html

I like bolding things today….

STOCKTON, California (Reuters) – Stockton, California was poised on Tuesday to take a major step toward becoming the largest U.S. city ever to file for bankruptcy after talks with its creditors on Monday at midnight.

Negotiations aimed at averting bankruptcy may press on informally, the city’s spokeswoman said, adding that city officials would next discuss any moves toward bankruptcy at the city council meeting on Tuesday evening.

The council’s main order of business will be taking up and voting on a proposed budget to guide Stockton during bankruptcy, an option city officials have been considering since February.

City Manager Bob Deis, who the council has authorized to file for Chapter 9 bankruptcy, last week unveiled the budget proposal, also known as a pendency plan.

The plan assumed Stockton, a city of 292,000 people about 85 miles east of San Francisco, would fail to win concessions from its 18 creditors to close its $26 million shortfall for the fiscal year beginning on July 1.

To help close the budget gap, Stockton’s plan would suspend $10.2 million in debt payments, a move likely to trigger rating agencies to further downgrade the city, and reduce spending on employee compensation and retiree benefits by $11.2 million.

About $7 million in savings would come from cutting retiree health care benefits for one year and then phasing them out. Stockton officials have said the benefits are a crushing expense due to their fast rise and projected liability of $417 million.

[fc] $417million???@!$#@$!@#$@!#$#@!$#@!$#@
Yeah, folks saying things won’t be rewritten and changed. Yes it will..When a city can’t pay, no choice. Game over to those benefits…. But look on the bright side… The entire state isn’t there (yet)….

Stockton’s confidential mediation with its creditors – required by a state law approved after the bankruptcy of Vallejo, California in 2008 – was part of an effort launched in February by city officials to restructure the city’s finances in time for the beginning of its next fiscal year.

The plan, however, left open the possibility of a bankruptcy filing in light of Stockton’s severe financial troubles.

Mark McLaughlin, a member of the board of the city police officers’ union, said he is resigned to a bankruptcy filing but expects his group will try to seek common ground with city before it should take that drastic step.

“It’s unfortunate we’re here but we need to keep working with the city,” McLaughlin said.

Stockton’s finances collapsed along with its housing market, forcing city officials to slash $90 million in spending in recent years and a quarter of positions across agencies.

Despite the cuts, Stockton has not been able to avoid recurring deficits. Its revenue is weak and its financial troubles have been compounded, according to city officials, by generous pay and benefits for city workers and retirees and too much debt taken on by the city when it enjoyed a home-building boom in the early part of the last decade that transformed it into a distant bedroom community for the San Francisco Bay area.

Many of the houses built and bought in that boom have been abandoned, repossessed and sold at deep discount as Stockton has been at the top or near the top of lists of housing markets suffering a glut of foreclosures in recent years.

Under its restructuring plan, Stockton has already defaulted on about $2 million in debt, allowing the trustee for one of its bond insurers to seize a building once slated to be its future city hall and three parking garages.

The intentional default and of bankruptcy prompted Moody’s Investors Service and Standard & Poor’s Ratings Services to drop their credit ratings on Stockton, which has more than $700 million in debt across its various agencies.

Moody’s has its issuer rating for Stockton at a junk level Ba2 from Baa1 while S&P has its issuer rating on the city from BB to SD, one notch above its D default rating.

A bankruptcy filing by Stockton is a “high-probability event,” Gregory Lipitz, a vice president and senior analyst at Moody’s, said on Monday.

[The-Shoveler]

If Stockton makes this work I would expect a flood of City BK’s soon after.

[Coronita]

[quote=The-Shoveler]If Stockton makes this work I would expect a flood of City BK’s soon after.[/quote]

Yup….

[sdduuuude]

[quote=The-Shoveler]If Stockton makes this work I would expect a flood of City BK’s soon after.[/quote]

One can only hope so.

[bearishgurl]

…Stockton’s finances collapsed along with its housing market, forcing city officials to slash $90 million in spending in recent years and a quarter of positions across agencies.

Despite the cuts, Stockton has not been able to avoid recurring deficits. Its revenue is weak and its financial troubles have been compounded, according to city officials, by generous pay and benefits for city workers and retirees and too much debt taken on by the city when it enjoyed a home-building boom in the early part of the last decade that transformed it into a distant bedroom community for the San Francisco Bay area.

Many of the houses built and bought in that boom have been abandoned, repossessed and sold at deep discount as Stockton has been at the top or near the top of lists of housing markets suffering a glut of foreclosures in recent years…

As I’ve always maintained, the excessive formation of CFD’s (in this example, dozens of them encroaching on and occupying CA’s agricultural heartland) along with the subsequent bond selling and building on all that CFD-encumbered land (especially in the absence of nearby well-paying jobs) is what got the City of Stockton into the this mess to begin with.

After about 1998, almost ZERO cities and counties in CA made contracts guaranteeing a health benefit subsidy to non-sworn retirees and some did not even guarantee them to sworn retirees. This benefit is revocable at any time. Stockton can (and should) take away this benefit from all their current annuitants who were not guaranteed the benefit. And they likely will if they have not done so already.

The passing of the Mello Roos Community Facilities Act (MR) and its later implementation among cities and counties was THE catalyst which fueled rampant millenium-boom building boom everywhere in the state where there was any land at all to spare. The subsequent “bust” was both a byproduct of overbuilding (made possible by the MR bonds) in conjunction with “loose lending.” Today, most jurisdictions who approved these CFD’s don’t even have enough employees on staff to service their huge population influxes of recent years made possible by their creation of these CFD’s in conjunction with Big Development.

This was all prophesied by my SD City College RE professor in 1982 (just after the act had been signed by the Legislature). It turns out he was spot on.

http://codes.lp.findlaw.com/cacode/GOV/1/5/d2/1/2.5

[ctr70]

A BK can sometimes be the only way to get the public pension people to the table for some serious negotiation on trimming down those pensions. Let’s see if the Gov (taxpayer) comes in a bails out the pensions.

[CA renter]

BG,

Your bolded comment is what stood out to me as well. That, and the fact that **revenues have been slashed** because of the deflating bubble.

But it’s all the fault of govt workers, right? 🙁

[sdrealtor]

Why is it ok for the government to manipulate things to the benefit of the public sector workers but not the housing market? Let’s rip off the bandage and let the bleeding begin so we can make some meaningful headway in controlling run away government spending. Some big cities need to fail so we can create a better more sustainable system. If its ok to let housing values crash it’s ok to let public pensions crash also. You can’t have it both ways

[ninaprincess]

Hopefully San Diego is next. It might takes a few years.

[Allan from Fallbrook]

Well, it’s official: http://www.cnn.com/2012/06/27/business/california-stockton-bankruptcy/index.html?hpt=hp_t2

[bearishgurl]

[quote=sdrealtor]Why is it ok for the government to manipulate things to the benefit of the public sector workers but not the housing market? Let’s rip off the bandage and let the bleeding begin so we can make some meaningful headway in controlling run away government spending. Some big cities need to fail so we can create a better more sustainable system. If its ok to let housing values crash it’s ok to let public pensions crash also. You can’t have it both ways[/quote]

You must admit that housing was never allowed to truly “crash.” The GOV has and is propping it up with numerous “machinations” that favor debtors over savers and the irresponsible and stupid over the wise owners and renters who plugged along for the duration of the “bubble” and kept their heads down.

Thus, the housing bandaid was never really “ripped off” and the housing market was never allowed to properly heal.

I think the “price upholding” today that you are seeing is the result of a dearth of available inventory, stemming from the “head-down” owner-types not wanting to market their properties in competition with the ignorant and debtors (or both in the same pkg, lol) who were/are able to “short sell” their way out of their debt.

And rightly so. There is a HUGE difference between a seller who will satisfy all trust deeds they signed and one who will not (or an institutional seller). When the “head-down” types (with integrity) finally decide to sell, they won’t be asking for “debt forgiveness” for past financial transgressions (caused from living beyond one’s means).

It’s not a level playing field.

[bearishgurl]

[quote=Allan from Fallbrook]Well, it’s official: http://www.cnn.com/2012/06/27/business/california-stockton-bankruptcy/index.html?hpt=hp_t2%5B/quote%5D

I’m really sorry to see this. As a child, the grain elevator view of Stockton and smell of feedlots there represented to me the Capitol of a vast agricultural foodbasket for the entire nation. It was a proud city.

I think before pointing the finger at public employees and unions, one would do well to actually examine their list of creditors. As soon as it is available on PACER, I will do so.

[briansd1]

Nothing wrong with bankruptcy. It’s a good way to start over. There is no shame in bankruptcy.

[bearishgurl]

[quote= (from the OP) flu]…Yeah, folks saying things won’t be rewritten and changed. Yes it will..When a city can’t pay, no choice. Game over to those benefits…. But look on the bright side… The entire state isn’t there (yet)….[/quote]

You’re “jumping the gun” here, flu.

If you’re referring to the huge patchwork of laws regarding collective bargaining of state, county and local public employees in CA, then I’ve always maintained “things” will have to be “rewritten” or “changed” by the CA Legislature and ONLY them. Game is NOT over yet. Stockton’s BK “trustee” likely hasn’t even been appointed yet and there has been no BK hearing on a possible “discharge” of contractual debts (pensions owed) to retired city workers.

Yes, the “low hanging fruit” is the retiree health-benefit subsidy. Not sure why the city has decided to take a year to phase them out. They were likely never contracted for in the first place.

It will be very interesting to see if the City’s lawyers even ATTEMPT to discharge debts incurred thru contractual obligations to their workers’ unions.

This “fat lady” hasn’t even begun to practice her scales yet :=0

[briansd1]

A good budget fix for everyone would be to lower health care costs to 10% of GDP (from the current 18%) and implement a zero tolerance for obesity.

Allow employers to fire people who are obese. That will force people to control their weight (and health care costs) if they wish to keep their jobs.

[Author]

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