Analysis Suggests Stockton Bankruptcy More Successful Than San Bernardino

Municipal bankruptcies can entail a lengthy and costly process that not only impacts lawmakers, but filters down to affect the debtor’s residents as well.

Over the course of the year, Stockton and San Bernardino, California, made headlines as a result of their high-profile municipal bankruptcies, and a new analysis of these proceedings highlights the differing paths these cities took and the reasons one may exit bankruptcy law protection more successfully than the other.

Currently, the Stockton bankruptcy may be in a position to traverse complex proceedings with more ease than San Bernardino due to the preemptive measures it took prior to filing for bankruptcy protection, a California newspaper The Record reports. The city entered into fiscal emergency declarations and community meetings and was able to make decisions quickly through a unified City Council, the newspaper reports.

In contrast, San Bernardino’s lawmakers were largely divided on the course of action to take, forcing it to hemorrhage more money trying to make decisions about its fiscal crisis.

“San Bernardino is in utter chaos,” Stockton city manager Bob Deis told the Record. “They’re digging for dollars to make payroll. It’s not pretty. We’re fairly organized because the majority of our council is on one page.”

Bankruptcy proceedings play out in a highly public and critical environment, and other cities that are on the verge of municipal bankruptcy – most notably Detroit – may be taking lessons from the other large metropolitan debtors that are currently wending their way through budgetary constraints, unions disputes, and funding shortfalls.

At present, Detroit’s emergency manager Kevyn Orr has suggested a debt restructuring plan aimed at helping the city avoid bankruptcy, but it remains unclear whether creditors will agree to the proposal. Under the suggested agreement, creditors would be asked to accept less than 10 cents on the dollar. In addition, Orr also decided that the city will temporarily suspend principal and interest payments on debt issued to bolster the city’s pension funds.

Of greater import, it is unclear at present whether Detroit will emulate Stockton and present a unified front in dealing with its financial troubles, or whether it will resemble the chaos playing out in San Bernardino.