Stockton Ruling Seen Key to US Cities’ Bankruptcy Options

March 31, 2013 – In The News
Reuters Online

A federal judge is expected to rule on whether the city of Stockton, California is eligible for bankruptcy protection, a key milestone in a case likely to set critical precedents for cash-strapped U.S. Cities, their employees and their bondholders.

The decision follows a three-day trial last week in which the city argued it had no choice but to file for bankruptcy after the financial meltdown that devastated local tax revenues and harsh budget cuts still left the city with a $26 million shortfall.

Michael Sweet said the city had proven even before last week’s trial that it was truly broke when it filed for bankruptcy protection last June. A municipality must be insolvent to be eligible.

“It will be hard for the judge to conclude that they weren’t insolvent,” Sweet said.