However, thanks to a new California law, the City Council’s move also could be the first step toward avoiding such a dramatic move.
Under the state law, municipalities considering bankruptcy must first seek mediation with creditors, with the goal of settling debts without filing for Chapter 9 protection.
Dozens of residents attended Tuesday’s six-hour council meeting to oppose the vote to enter mediation, saying they feared it would push Stockton further into trouble. The river port city of 290,000 already has the second-highest foreclosure rate in the nation and one of the highest crime and unemployment rates.
“If they vote for mediation, it is the first step towards bankruptcy,” former City Manager Dwane Milnes told KCRA-TV. “That means 1,000 people could lose retirement benefits.”
Stockton will be the first city to test the state law, Assembly Bill 506, which is less than two months old. It requires local government agencies to undergo mediation or hold a public hearing and declare a fiscal emergency before filing for bankruptcy.
In 2008, Vallejo became the biggest California city to file for bankruptcy, and it emerged from bankruptcy last year.