A judge accepted the California city of Stockton’s bankruptcy application on Monday, making it the most populous city in the nation to enter bankruptcy.
U.S. Bankruptcy Judge Christopher Klein said the bankruptcy declaration was needed to allow the city to continue to provide basic services…
Its salaries, benefits and borrowing were based on anticipated long-term developer fees and increasing property tax revenue. But those were lost in a flurry of foreclosures beginning in the mid-2000s and a 70 percent decline in the city’s tax base
The city’s creditors wanted to keep Stockton out of bankruptcy—a status that will likely allow the city to avoid repaying its debts in full.
They argued the city had not cut spending enough or sought a tax increase that would have allowed it to avoid bankruptcy.
An interesting case. I think the real question is whether Stockton is the last or biggest city to declare bankruptcy and whether there are more to come. Stockton is part of an area in California that was hit particularly hard by the housing bubble and a number of other cities have experienced financial difficulties. For example, several California cities have outsourced basic services.
Speaking more broadly, what punitive measures can be leveled against a community in such debt? Is it the taxpayers and creditors who end up being the real losers?
Legally Sociable 