Add Stockton, California (population 292,000) to the list of cities bankrupted because of bad management and over-generous public union wages and benefits.



Please consider New Stockton City Hall building seized by Wells Fargo; city preps bankruptcy contingency plan



The Stockton City Council announced Wednesday that they will look at bankruptcy contingency plans after Wells Fargo seized the new city hall building.



The city paid $35 million to buy the 8-story building, but was not able to move in because of its money problems, and recently stopped making debt payments all together. This is the fourth building that was repossessed by Wells Fargo; the bank seized three city parking garages for the same reason.



At the June 5 Stockton City Council meeting, members will look at a contingency plan if mediation between the city and creditors failed, city spokesperson Connie Cochran said. For the past two months, the city, under AB 506, has been in a mediation process with creditors to come up with a payment plan in order to avoid bankruptcy.

Wall Street lawyers are likely taking the hardest line in mediation with Stockton, waiting for the closed-door talks to play out with their arms folded, but seated at the table.



"It's one thing to be forced by a court to give up your rights," said Matt Fabian, a bond analyst at Municipal Market Advisers in Connecticut. "It's another thing to give them up willingly."



Stockton entered mediation March 27, and it agreed with its creditors and labor groups to continue until June 25. Mediation is the last-ditch effort to avoid bankruptcy.



The conversation in mediation starts with Stockton's general fund deficit of $26 million, a fourth multimillion dollar shortfall year. The city must chip away at that figure with an eye on restructuring its obligations and forecasted deficits for years to come.



These are Stockton's major obligations next year, absent any concessions:



Bondholders will get $13 million, an amount that has increased 600 percent in four years. Payments have ballooned just like homeowners who took adjustable-rate mortgages;



Stockton must fund its pay-as-you go retiree health care system at $9 million annually, something City Manager Bob Deis has compared to a Ponzi scheme. To begin funding this $417 million liability, the city would have to put aside $18 million next year;



A few things are known about mediation. There are 18 parties involved, and they are represented by 100 attorneys and accountants combing Stockton's finances.



They are the city's labor groups, retired city employees, CalPERS, Wall Street investors, Wells Fargo Bank and insurers responsible for paying bond holders if and when Stockton defaults.