Heated nine-hour Stockton council meeting centers on bankruptcy

What does it look like when a city goes bankrupt?

The answer was sharp and clear at a contentious Stockton City Council meeting the day after a judge declared the city of 300,000 eligible for bankruptcy.

The meeting began at 5:30 p.m. Tuesday and ended shortly after 2 a.m. Wednesday. The council opposed a sales tax intended to pay for more police officers, which could imperil the city’s standing in Bankruptcy Court.

PHOTOS: California cities in bankruptcy

The chambers were packed with people who said that crime in California’s second-most violent city was eating away at their lives. Most were there to support a plan proposed by Mayor Anthony Silva for a half-cent sales tax that would self-destruct if any of the money went to creditors or anything other than police officers on the street.

The tax would have to be approved by voters.

The city manager, city bankruptcy attorney Marc Levinson and a host of municipal finance experts all warned that a restricted tax at this time could have unintended consequences. It would devastate the general fund with added expenses and harm the city in bankruptcy proceedings, they said.

“We’re dealing with the biggest bankruptcy in the history of the country,” City Manager Bob Deis reminded council members. “This is complex.”

On Monday, a federal judge ruled Stockton is eligible for federal bankruptcy protection, over the objections of creditors who argued the city could come up with more money.

At Tuesday’s meeting as the clock inched towards 1 a.m., Levinson said Stockton had won the first stage of the case because the city had shown it had cut everything it could. Its creditors have liens on “basically everything the city owns.”

Other cuts had been on the backs of “laborers, retirees and other people.... God knows this city has felt pain,” Levinson said.

He warned raising revenue with a tax that could not be touched by the banks and bond holders, which financed a building binge during the flush years, could hobble the city in court.

“I’m good,” he said. “But I’m not that good.”

Stockton was one of the hardest-hit cities during the country’s foreclosure crisis, with one in 10 families losing their homes. Entire housing tracts, built to lure Bay Area refugees, went under.

The expected tax revenue vanished and the city’s own real estate--including a revitalized downtown with marina and hotel, plummeted in value.

The city made $90 million in drastic cuts from the general fund in the last three years, including reducing the Police Department by 25%, the Fire Department by 30%, and cutting pay and benefits to all employees. In late June, Stockton became the largest U.S. city to file for protection under U.S. bankruptcy law.

The aspect of the case that has attracted the most outside attention is whether the city’s $900 million in obligations to the state employee pension plan will be cut during the reorganization of debt.

But within the city, the most pressing concern is public safety. There were 56 homicides in 2011 and 71 in 2012. There have been six murders since Jan. 1, a drop from 16 at the same time last year.

At Tuesday’s nine-hour meeting, the city approved the Marshall Plan, a community-wide effort to reduce violent crime through such efforts as public “night walks” and concentrating police forces in hot spots.

The council opposed the tax plan or any other restricted revenue that could jeopardize the city’s general fund or help their creditors win in court. A voice in the back jeered, “We’re dying in the streets, and you’re paying Wall Street.”

“I have been part of the council that made those Draconian cuts,” said Councilmember Elbert Holman “It hurt a lot of people. I want to do the thing that gives us long-term stability.”

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Twitter: @dianamarcum

diana.marcum@latimes.com