The budget suspends $10.2 million in debt payments and cuts employee compensation and retiree benefits by $11.2 million. About $7 million in savings would come from cutting retiree medical benefits for one year. The retiree medical benefits will be eventually eliminated.
Stockton becomes the nation's most populous to file for Chapter 9 bankruptcy. But Jefferson County, Alabama, remains the biggest in terms of debt outstanding, as it had a debt load exceeding $4 billion when it filed in 2011. Stockton has about $700 million in bond debt.
Stockton has suffered a sharp drop in revenue since the collapse of its once red-hot housing market, forcing it to cut more than $90 million in spending in recent years. The housing boom transformed the farming city into a distant bedroom community of the San Francisco Bay area, and the bust put it at, or near, the top of national foreclosure rankings in recent years.
Standard & Poor's Ratings Services downgraded Stockton to default from selective default on Wednesday, citing the city's move toward bankruptcy and expectations that it will not substantially pay all of its obligations as they come due.
Moody's Investors Service on Wednesday cut to 'Caa3' various general fund-supported debts of the city, putting the ratings in the "substantial risk" category, one notch above the "may be in default, extremely speculative" grouping. Moody's said its move was based on Stockton's bankruptcy budget.
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