Years after betting on a sustained housing boom to bankroll a waterfront redevelopment and dole out salary and benefit perks to city employees and retirees, Stockton cashed in its chips Tuesday in a plan that will lead it into bankruptcy.
The City Council voted to approve an austerity plan, including stopping bond payments and making deep cuts in retiree health care, as part of a plan to file Chapter 9 bankruptcy.
The insolvent city of nearly 300,000 residents, home to America's second-highest rate of foreclosure, is now certain of the additional ignominy of becoming the largest city in America to declare bankruptcy.
Only six years ago, Stockton had appeared to be a boomtown as median home prices shot up from $110,000 to $400,000.
Bursting with new tax revenue and anticipating 10 percent annual increases in its budget resources, Stockton cashed in by selling bonds for an urban renewal including a $68 million arena and invested $125 million in a pension fund that resulted in fiscal disaster.
On Tuesday night, in preparation for the bankruptcy filing, the City Council voted 6-1 to enact a plan to slash retiree health coverage starting this year and possibly eliminate it next year.
Stockton also will use bankruptcy protection to suspend contracts with its public employee unions to cut city employee pay and benefits. It will also stop bond payments as it seeks protection from creditors and renegotiates its debts.
"Unfortunately we're running out of cash very quickly," said Stockton Mayor Ann Johnston in advocating an austerity plan for seeking Chapter 9 municipal bankruptcy protection. "We don't have the resources to pay our bills. We have to figure out how we can continue to keep a balanced budget but provide the basic services for our community."
She added, "It's a sad day in the city of Stockton."
The cuts in health care benefits stirred an emotional response from numerous retirees, including Geri Ridge, a police records clerk for 26 years. Ridge told City Council members of the two heart attacks she suffered – the last that ended her career and nearly killed her. She said she lives on $1,895 monthly retirement income – but now faces the prospect of spending nearly every penny to replace her lost health coverage.
"You made promises that we would be taken care of when we retired. Now you tell me, 'No.' What is wrong with you people?"
Gary Jones' voice cracked with anguish as he addressed the council.
"If I lose this medical, for me it might as well be a life sentence," said the retired Stockton police officer who had surgery to remove a brain tumor and endured radiation treatment for the past year.
The intense City Council session was marked by Johnston ordering security officers to remove a woman in the audience for clapping for a speaker haranguing the council.
That only infuriated Stockton restaurant owner Adolph Egoroff, who blasted officials for taking a dismissive attitude toward citizens while bringing fiscal shame on the city.
"Your smirks and your lack of concern for us does not go unnoticed," Egoroff said. "I have a voice for the people of Stockton who do not want this bankruptcy. "
City Manager Bob Deis told City Council members this month that Stockton was insolvent and needed an emergency budget plan to be able to pay its bills after July unless major concessions were reached with the city's creditors, employee groups and retirees by Monday.
On Tuesday night, Deis said the city was close to reaching deals with about one-third of its creditors and seven of nine labor groups but that they weren't enough to balance the budget, though the agreements could become part of a bankruptcy settlement.
Stockton faces a $26 million deficit in a $521 million city budget after making cuts to address $90 million in deficits over the past three years.
The city's bond rating is in junk status after disastrous financial decisions, including selling pension bonds to invest $125 million in a CalPERS pension fund that is now worth $100 million and will cost the city $248 million in payments.
A $48 million office building, purchased by Stockton for a new city hall, was repossessed by creditors along with three city parking garages. The city did complete a $129 million redevelopment of its waterfront, and the new downtown arena remains underbooked.
The city, which once counted on a 10 percent annual growth in its general fund tax revenue, has the nation's second-highest rate for home foreclosures and a plummeting local tax base.