Stockton Clearing Path For City's Bankruptcy

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Tuesday night the city council in Stockton, Calif., is expected to clear they way for the city to declare bankruptcy. It will be the largest municipal bankruptcy ever for a city that is a poster child for the housing crisis.

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This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.

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And I'm Audie Cornish. We're going to begin this hour in the city of Stockton, in California's Central Valley. Stockton has suffered badly in the housing crisis and tonight, the city council is set to approve a plan that will lead to bankruptcy. Stockton, home to 290,000 people, will become the largest U.S. city to file for bankruptcy. As NPR's Richard Gonzales reports, it's a bitter pill for a city many felt was on the mend.

RICHARD GONZALES, BYLINE: Monday morning, in Stockton's miracle mile neighborhood, a group of volunteers and teenagers with a summer work program shovel away the brick and cement debris of a crumbling street bench. A few yards away, more teens are painting the street curbs red and fire hydrants yellow. The city of Stockton can't afford to do this work.

DENISE JEFFERSON: The city's had to back out of a lot of the maintenance and security that they did before, so we've had to infill.

GONZALES: Denise Jefferson directs Miracle Mile Improvements Association.

JEFFERSON: The city, not only do they not have the money, they don't have the manpower. And they don't have the manpower to oversee doing it as volunteers.

GONZALES: Jefferson is on a crusade to bolster morale in her neighborhood, if not the rest of Stockton, as it hopes to recover from an economic storm. Stockton, about 90 miles east of San Francisco, has always been a hard luck town with more than its share of crime and poverty. A housing boom and, with it, new tax revenues once promised to change that image. But when the economy crashed, the city had one of the highest foreclosure rates in the country.

Those tax revenues evaporated, leaving the city unable to cover expenses, including costly municipal union contracts.

DWANE MILNES: It's sort of the perfect storm.

GONZALES: That's Dwane Milnes, a former Stockton city manager.

MILNES: You know, variable interest rates on bonds worked the wrong way. Health inflation just drove through the ceiling. Crime rate went up. Can we please have only one of those things happen?

GONZALES: Stockton had little choice but to slash its police force by 25 percent. Firefighters were cut 30 percent. A bank seized a building meant to be a new city hall. There is still a $26 million budget deficit. Inside Stockton's crumbling Renaissance revival-style city hall, Mayor Ann Johnston says bankruptcy is almost inevitable, and that the hardest part has been trying to explain to the public how this happened.

MAYOR ANN JOHNSTON: We're like a family that is, you know, on the skids, trying to figure out how they're going to keep their house, how they're going to pay their bills.

GONZALES: The plan is to adopt a budget tonight that assumes the city will file for Chapter 9 bankruptcy. The so-called Pendency Plan means the city won't pay many bondholders. It will reduce benefits for past and current employees and it will eventually eliminate a health care plan for retired employees. Dwane Milnes, a former city manager who's also the president of the Association of Retired Employees, says his members know everyone has to take what he calls a haircut.

But he says the city's budget plan will exact a severe human cost.

MILNES: I have retirees with brain tumors, really serious type 2 diabetes and their on low incomes and they're going to have to choose between medicine and food.

GONZALES: Back at the Miracle Mile neighborhood, Denise Jefferson says whatever stigma comes with bankruptcy will pass. Meanwhile, she says, there are a lot of people ready to take charge.

JEFFERSON: Instead of just crying and saying, oh, the police won't answer, the garbage isn't being collected, they're saying, I'll pick up the garbage. I'll paint the curbs.

GONZALES: Jefferson says she hopes a bankruptcy plan will prove to be the opening of a hopeful new chapter for Stockton and not just another black eye for this beleaguered city. Richard Gonzales, NPR News. Transcript provided by NPR, Copyright NPR.