United States Bankruptcy Court Judge Christopher Klein rejected the motion of Wall Street creditors to stop the municipality of Stockton, California from seeking chapter 9 bankruptcy protection, according to report from The Sacramento Bee.
In his ruling, Judge Klein emphasized that Stockton demonstrated during the previous 3-day trial that it met all the requirements to become eligible to continue its case for bankruptcy protection. Klein said, “The city of Stockton was by any measure insolvent…cash insolvent and unable to pay debts as they came due.”
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Judge Klein added emphasized that Stockton suffered a record number of murders last year, and it is necessary for the municipality to seek bankruptcy protection for its fiscal and social well-being. According to him, “It is clear that the city would not be able to perform its obligations to its citizens, such as fundamental matters of public safety.”
Furthermore, Judge Klein noted that Stockton implemented major actions to fix its fiscal problems such as reducing its police force by 25 percent, and cutting the number of its staffs and major services after the city became ground zero for housing foreclosures. Stockton cuts its budget by $90 million in three years before seeking for bankruptcy protection last summer.
Judge Klein criticized the creditors of Stockton for refusing to negotiate with the city regarding its bond debts unless it agrees to cut its large employee pension obligations. Stockton’s payment obligation with the Californian State Employees Retirement System (CalPERS) is $29 million a year.
Klein said, “The translation (was that) if you don’t intend to impair CalPERS, we’re not going to talk to you. They absented themselves from all discussions…. And having voted with their feet, there was no point in talking to them further.”
According to Klein, “The capital market creditors did not negotiate in good faith. And therefore, they do not have the ability to complain.”
Stockton’s creditors include Assured Guarantee Corporation, Assured Guaranty Municipal Corp, National Public Finance Guaranty Corp, Wells Fargo & Company (NYSE:WFC), the Franklin California High Yield Municipal Fund and Franklin High Yield Tax-Free Income Fund.
Stockton is the largest city that filed for bankruptcy protection with 290,000 residents.