U.S. Markets closed

Stockton Teeters on Bankruptcy Edge, but City’s Not Alone

The Exchange

The city of Stockton, Calif., is teetering on the edge of insolvency. According to reports, a string of failed debt negotiations over the last few days mean the city is preparing to file for bankruptcy protection, possibly this week.

Mammoth Lakes, Calif., is in the same mediation process that Stockton used -- a process that has come under challenge. The phenomenon isn't new to California, where in 2008, Vallejo filed. The anticipated Stockton filing would dethrone Vallejo as being the largest California city ever to file for bankruptcy.

For perspective, in the most recent census, Vallejo had a population of 115,942, while Stockton, the state's 13th largest city, had 291,707 residents.

Although California is a repeat offender, municipal bankruptcies aren't regional.  If Stockton and Mammoth Lakes ultimately do file, they would follow Central Falls R.I., and Jefferson County Ala., which sought bankruptcy protection last year.

Other close calls include Harrisburg, Pa., and Boise County, Idaho, which filed for bankruptcy last year but had their claims rejected. One thing that's clear, the problem is spanning the country.

Some cities have taken unusual steps to avoid bankruptcy. In 2011, Highland Park, Mich., turned out the lights. It agreed to a settlement with DTE Energy that included the removal of light bulbs in 1,400 light poles.  The city avoided paying $4 million in unpaid bills, going back several years, and is saving an estimated $50,000 per month. (Looking for a brighter future, Highland Park replaced 200 of the remaining bulbs with higher-efficiency models.)