SAN FRANCISCO, April 2 (Reuters) – California’s state
controller said on Monday his office will investigate the
financial practices of the city of Stockton which is holding
talks with its creditors as part of a plan to avoid filing for
bankruptcy.
Stockton’s city council has approved a controversial
financial restructuring plan that includes mediation with its
creditors and a default on about $2 million in its debt service
payments through June to try to bolster its battered finances.
Stockton’s finances have been hammered by slumping revenue
due to the implosion of its housing market, too much debt,
costly pay and benefits for city employees and retirees and two
decades of mismanagement, according to the city’s manager.
State Controller John Chiang, in a letter released on
Monday, informed City Manager Bob Deis that Stockton would be
investigated over its failure to submit three financial reports
for the 2010-2011 fiscal years due in October and December.
Additionally, previous city fiscal reports have several
discrepancies that “raise questions about their reliability,”
Chiang said in the letter.
He concluded that “there is reason to believe that the
City’s ability to provide reliable and accurate financial
information relating to the required financial reports is
questionable.”
The controller said his office’s audit likely will not be
completed before the mediation, which may last up to 90 days,
between Stockton and its creditors, so its findings will not
likely find their way into the negotiations.
Stockton intends during the talks to ask its creditors,
employees and retirees for concessions to help it balance its
books. City leaders have said Stockton faces a budget gap in a
best case scenario of $20 million.
Mediation is required under a new state law approved in the
wake of Vallejo, California’s 2008 bankruptcy. If Stockton does
not notch sufficient concessions, it could still file for
bankruptcy.
(Reporting By Jim Christie)
