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STOCKTON – Stockton could exit bankruptcy by the end of the year if things go the way the city hopes. A federal bankruptcy judge in Sacramento gave Stockton the green light to stay in bankruptcy April 1. The city and creditors have been working on a Plan of Adjustment for Stockton’s debt with Judge Elizabeth Perris. The goal is to have a plan approved by the third quarter. It would have to be approved by Judge Christopher Klein.
“We’re hoping that would happen by the end of the year,” said Connie Cochran, spokeswoman for the city of Stockton.
Klein made the April 1 ruling after hearing three days of cross examination from the city of Stockton and its creditors. He also read through hundreds of pages of testimony.
The city’s creditors had argued Stockton failed to negotiate in good faith before turning to bankruptcy, but Klein said it was the creditors who acted in bad faith.
Bankruptcy will likely allow the city to avoid repaying its debts in full. “After nine months and millions of dollars in legal fees, the Judge validated what we have been saying from the beginning, that the city is insolvent and needs the protection of bankruptcy to adjust its debts,” said City Manager Bob Deis. “The next steps are to confirm a Plan of Adjustment through the restructuring of our debt, begin the recovery process and move Stockton forward.”
One of Stockton’s leading creditors, Assured Guaranty, said in a press release right after the ruling it “respectfully disagrees with the Court’s ruling that the City of Stockton met its burden of satisfying the Chapter 9 eligibility requirements. Further, Assured Guaranty believes that the proceedings last week demonstrated that the citizens and other stakeholders of Stockton will all benefit from a consensual approach that truly resolves the City’s financial predicament and treats all of Stockton’s stakeholders in a fair and equitable manner.”
Stockton is the largest city in the United States to declare bankruptcy. Some business leaders said bankruptcy was the only alternative left to the city. “I think that the business community is saying what Judge Klein did is a step forward because without that, what does the city do?” said Business Council President and CEO Ron Addington.
“They don’t have the revenue to make a lot of payments that are required under the current laws that they have to deal with. So bankruptcy was really their only avenue.”
“I think the decision of the judge was the right thing, and now we move forward,” said Stockton Greater Chamber of Commerce CEO Douglass Wilhoit. “It’s not stuck in neutral, now it’s in forward gear and there’s light at the end of the tunnel. I think it will work for the best interests of the community.”
Wilhoit also said comparing the state of city government with the state of the city’s business is like comparing apples and oranges.
“The business community is doing fine even under the bad economic times statewide, nationally,” Wilhoit said. “The business community is still going along. The bankruptcy black cloud may have some effect , but if you saw the last quarter, the sales tax revenue of the city was up.”