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YOLO COUNTY NEWS
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Bankrupt Stockton says final creditor won’t budge

Stockton Bankruptcy Trial

A "For Lease" sign adorns the Bank of Stockton building in 2012, as the city headed for bankruptcy. Now, one of the city's creditors insists there's enough money to pay up. AP file photo

By
From page A2 | May 13, 2014 |

SACRAMENTO (AP) — An attorney for the largest city in California to seek bankruptcy protection told a judge Monday that he has tried to reach a deal with Stockton’s last major creditor, but the company is not budging.

Marc Levinson, an attorney for the city, made the comments during his opening statement in a trial over Stockton’s plan to emerge from bankruptcy. The city is asking a judge to approve the plan for reorganizing more than $900 million in long-term debt, while Franklin Templeton Investments wants U.S. Bankruptcy Judge Christopher Klein to reject it.

The city has reached deals with all of its major creditors, except for Franklin, which took Stockton to trial.

The investment firm’s attorney, James Johnston, says it is being offered 1 cent on the dollar for a $35 million loan given to Stockton in 2009 to build firehouses, parks and to move its police dispatch center, amounting to $350,000.

Johnston told the judge that Stockton struck much more favorable deals with other creditors. The attorney said the city is making a meager comeback, allowing it to pay its debts to the firm.

“The city is recovering,” Johnston said. “It is not a strong recovery, but it is undeniably recovering.”

Levinson said Franklin is a billion-dollar investment firm and its potential loss in Stockton amounts to a “rounding error.”

“For the city, this week is a fight for its life,” he said.

Stockton, an inland port city 80 miles east of San Francisco, filed for Chapter 9 protection in 2012, making it the nation’s largest bankrupt city before Detroit filed last year. Vallejo went through bankruptcy before Stockton. San Bernardino filed shortly after Stockton, but it has yet to present an exit plan.

Stockton’s leaders say the city fell victim to an unforgiving boom-and-bust economic cycle.

Before the recession, leaders spent millions of dollars revitalizing the downtown by buying a new City Hall and building a marina, a sports arena and a ballpark. The city issued about 3,000 permits annually to build new homes, and it paid police premium wages and health benefits.

With the recession, building dried up, and Stockton became ground zero for home foreclosures. Like many residents, City Hall couldn’t pay its bills. The city slashed millions of dollars from its budget and laid off 25 percent of its police officers. Crime soared.

City Manager Kurt Wilson has said the bankruptcy could be over as soon as June 30. But if the judge rejects the plan, it could take another six months, he said.

Stockton consultant Robert Leland spent much of the day on the witness stand answering questions about the city’s financial projections. The investment firm believes the city is too conservative and that Stockton could pay its debts. Franklin argues that the city agreed to pay its other creditors 52 percent or more of what it owes over the next 40 years.

Leland said Stockton needs to save up reserves to avoid the problems it currently faces. It also needs to update old accounting systems, one of the repairs the city has put off for years.

“There are many, many pressing needs,” Leland said.

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By Scott Smith

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