STOCKTON, Calif. (AP) — By outward appearances, Stockton,a city of nearly 300,000 on the
Sacramento-San Joaquin River Delta,seemed in the mid-2000s to be emerging from decades of struggle.Nextto
its gleaming downtown waterfront — a window to the West’s largestfresh-water estuary — a beautiful new $46
million glass hockey arenarose in 2005. That same year, the Oakland A’s single-A affiliate Portsbegan play
in a new taxpayer-financed stadium, amenities sought byelected officials catering to a wave of new residents
fleeing Bay Areacongestion and home prices.High salaries and lucrative benefitswere supposed to attract and
retain the brightest city workforce toimprove the quality of life for its residents. "We spent like the
goodtimes would go on forever," said Stockton spokeswoman Connie Cochrane.Butthen the recession hit,
and the good times went bust. On Monday, thestate’s 13th-largest city begins federal court proceedings that
couldend with it becoming the most populous in the nation to successfullyenter Chapter 9 bankruptcy, a move
opposed by those who lent the moneyto keep it flush.On its journey to this point, the Central Valleycity has
become emblematic of both government excess and the financialcalamity that resulted when the nation’s
housing bubble burst. Itssalaries, benefits and borrowing were based on anticipated long-termdeveloper fees
and increasing property tax revenue. But those were lostin a flurry of foreclosures.After the city’s
population grew bynearly 20 percent between 2000 and 2005 and real estate tripled invalue, home prices
plummeted 40 percent the following year beforebottoming out at 70 percent.Within two years, Stockton
hadaccumulated nearly $1 billion in debt on civic improvements, money owedto pay pension contributions and
the most generous health care benefitin the state — coverage for life for all retirees plus a dependent
nomatter how long they had worked for the city."It’s not realistic to think that something like that
could be sustained indefinitely," Cochrane said.Today,its largest creditors are the companies that in
2007, after the economybegan to contract, insured the bonds that funded the city’sover-extended pension
obligations.The city’s deal was risky fromthe start, said Jeffrey Michael, who as director of the
businessforecasting center at University of the Pacific has studied the city’sstruggles."It was like
refinancing your house and dumping theproceeds into the Wall Street market and hoping your earnings go
upfaster than the interest rate on your loan," he said.By 2009, thecity began slashing its budget to
stay afloat. The police departmentlost 25 percent of its 441 sworn officers and fire was cut by 30percent.
City staff was cut by 40 percent. The city general fund budget,now $155 million, has been cut by $90 million
over three years.Theimpacts were felt everywhere. Wells Fargo seized three parking garageswhen the city
defaulted on the $32 million in bonds that financed them.Bond holders also seized the $40 million downtown
high-rise that was tobecome City Hall.Stockton recorded its highest-ever number ofmurders in 2011 and 2012,
and had three just last Sunday. Last year, anFBI analysis of violent crime made it the 10th most dangerous
city inthe U.S. Its unemployment rate is 17.5 percent, and it has thethird-highest illiteracy rate in the
country."We are fiscallyinsolvent, but service insolvent as well and that threatens our abilityto
attract new business, which we need to recover," Cochrane said.Lastsummer, the city began negotiating
with creditors, a requirement beforeentering Chapter 9 bankruptcy. Ten employee unions agreed to
temporarywage and benefits cuts.Retired employees have also been asked topick up a larger share of health
care premiums, closing a $540 millionretiree health care cost liability.But the holders of the biggestshare
of the debt were the companies that in 2007 insured nearly $165million in pension bond obligations to allow
the city a lower interestrate and make them stable for investors. They were unable to negotiate adeal and
want the city to avoid bankruptcy, which would likely allowStockton to avoid repaying the debts in
full.Officials for thelargest creditor, Assured Guaranty, said the city offered them 17 to 18cents on the
dollar for bonds that run through 2048, a deal they plan toargue in court is unacceptable. They say the city
should further cutcosts and raise taxes and point to city subsidies for the arena and $7million in
uncollected parking tickets.City politicians also lackthe political fortitude to cut contributions to
CalPERS, the publicemployee pension program, Assured officials say. Employees who shared inthe wealth when
times were flush ought to sacrifice when they are not,they say.Stockton wants to cut its repayment of the
pension bonds without reducing the liability itself, the attorneys wrote.Thoseopposing bankruptcy say the
city needs long-term wage concessions frompublic employees, not the one- and two-year deals that were
negotiated.The pain must be shared among all debt holders, they argue."Stocktonhas budgeted itself into
insolvency. It is now trying to cram down aplan on those it did not favor, instead of focusing on creating a
fair,equitable and long-term plan for all stakeholders," said Robert Tucker,managing director of
Assured Guaranty.Few people doubt the citywill be successful at a four-day trial and enter bankruptcy, but
thatwon’t be the end of litigation. If Chapter 9 protection is approved, afederal bankruptcy judge would
still have to decide whether Stockton’sbankruptcy plan is fair, or whether it singles out some groups to
bearmore of the financial burden than others."All of us have a stake in ensuring Stockton gets back on
its feet," Tucker said.___Reach Tracie Cone: www.twitter.com/TConeAPCopyright 2013 The
Associated Press.