Stockton unveils plan to exit bankruptcy

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bob deis
ELIZABETH STEVENS/CVBJ
Stockton City Manager Bob Deis explains the plan of adjustment to reporters.

UPDATED Oct. 2
STOCKTON — The city of Stockton released its plan to exit bankruptcy Sept. 27 in advance  of its presentation to the City Council. While it provides a roadmap for settling the city’s debts, there are still some key unknowns and the job is not done yet.

The plan, formally called the Proposed Plan of Adjustment and Disclosure Statement, was posted on the city’s website.

“While the bankruptcy filing has been a huge strain for the Stockton citizenry and its employees and retirees, and to some degree damaging in terms of public opinion, it was absolutely necessary in order to unwind some of the unsupportable obligations which the City had made in years past,” City Manager Bob Deis wrote in his summary of the plan.

City staff will present the plan to the Stockton City Council at a special meeting on the bankruptcy Thursday, Oct. 3. The public is invited to attend and provide comment. If the Council approves the plan, Deis will file it soon after in U.S. Bankruptcy court and creditors will have a chance to respond.

In the plan’s summary, Deis said negotiations with creditors are ongoing. As of Sept. 27, the city had struck deals with 14 of its 19 creditors.

“It is important to note that the filing of the proposed disclosure statement and plan of adjustment in no way alters the current mediation negotiations occurring with creditors,” Deis wrote. “Negotiations are extremely fluid and active. We may have updates to this report at the City Council meeting. We will continue to negotiate all the way to the trial date on confirmation if necessary. Thus, our plan of adjustment may change before trial.

The largest outstanding creditor is Assured Guaranty Corp., which insures a $125 million pension obligation bond and the $41 million in bonds issued to buy the building at 400 E. Main St. in downtown Stockton, which was supposed to be the home of a new City Hall but was seized by Wells Fargo Bank when payments weren’t made.

Deis said the city was nearing an agreement with Assured Guaranty and may have a deal before the Oct. 3 meeting.

According to the plan, the city wants to keep Stockton Arena, Banner Island Ballpark, take back control of three parking garages and retain the Stewart-Eberhart Building at 22 E. Weber Avenue. According to the papers, the city believes it can cover debt payments for the arena and ballpark with money from outside the General Fund. It also intends to create a new parking enterprise to run parking operations in the center of the city.

The city believes because the Stewart-Eberhart Building houses services essential to the city, it has no choice but to pay the lease obligation in full.

stockton marina
ELIZABETH STEVENS/CVBJ
The Marina is one asset the city may not be able to retain under its debt reorganization plan. The state may take over operations.

The city may end up losing the Marina, however.  The city owes $10.8 million to the state for improvements made to it.

“The Marina’s an example of over-reaching,” Deis told reporters referring to the high cost the city took on when it was built.

The city can’t pay the debt from Marina revenues or out of the General Fund, papers said, so it may allow the state to take over operations. That would save the city $685,000 annually in debt service payments, which would increase the annual savings to the General Fund by $160,000. The state has said it is open to that option, and negotiations are continuing.

According to the staff report, the city is determined to keep its basic California Public Employees’ Retirement System pension for city employees, saying staying with the relationship is “crucial to the city’s ability to recruit and retain a quality workforce.”

During the news conference Deis said there has been a lot of misunderstanding about the CalPERS negotiations and “PERS has become the strawman” in discussions about Stockton’s bankruptcy but that “I can’t play to demagoguery.”

The Plan of Adjustment depends on heavily on voters passing Measure A, the ¾-cent sales tax increase that will raise money to help pay down debt and fund the Stockton’s Marshall Plan on Crime.

“The alternative would be brutal, consisting of approximately $11 million in more service cuts,” Deis wrote. He told reporter cuts of that magnitude would be eliminating the library and the recreation department as well as a 14 percent cut to fire service and no Marshall Plan.

The special City Council meeting will be held at 5:30 p.m., Thursday, Oct. 3 in City Council Chambers, 2nd floor, 425 N. El Dorado St. in downtown Stockton.

Read more Business Journal stories about Stockton’s bankruptcy here.

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