Closing Arguments Set in Stockton Bankruptcy Case

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    NEWSLETTERS

    TK

    A judge was set to hear closing arguments on Wednesday in the bankruptcy trial of the California city of Stockton.

    If the judge accepts Stockton's Chapter 9 application, it would become the most populous U.S. city to enter bankruptcy.

    The judge could decide immediately after closing arguments whether to accept the filing. Lawyers for the city have said Stockton has cut its budget and services to the bone and has no choice about entering bankruptcy.

    The city's creditors counter that Stockton officials have failed to cut enough spending or seek a tax increase to avoid Chapter 9.

    They complain that Stockton has not negotiated cuts in the money it pays into the state pension fund, which represents its largest debt.

    They want to keep Stockton out of bankruptcy, which would likely allow the city to avoid repaying debts in full.

    The city appeared to be riding high in the early 2000s. The population had grown by nearly 20 percent between 2000 and 2005, and real estate tripled in value. Then the real estate bubble burst and home prices fell 70 percent, wiping out much of the tax base.

    Within two years, Stockton had accumulated nearly $1 billion in debt on civic improvements; money owed to pay pension contributions; and the most generous health care benefits in the state.

    Coverage had been provided for life for all retirees plus a dependent, no matter how long they had worked for the city. Last summer, the city began negotiating with creditors a requirement before entering Chapter 9 bankruptcy.

    Ten employee unions have agreed to temporary wage and benefits cuts. The biggest share of the debt is held by companies that in 2007 insured nearly $165 million in pension bond obligations to allow the city a lower interest rate and create stability for investors.

    The city proposed repaying 17 cents on the dollar.