Sales tax measure to go on bankrupt California city's ballot

SAN FRANCISCO (Reuters) - Stockton, California’s city council voted on Tuesday night to put a measure increasing the city’s sales tax on the November ballot to raise revenue to help the city exit from bankruptcy and to increase spending on public safety.

The City Hall is seen in Stockton, California June 27, 2012. REUTERS/Kevin Bartram

The vote came more than a year after the city of roughly 300,000 residents in California’s Central Valley became the biggest U.S. city to file for bankruptcy protection from its creditors.

If Stockton’s voters approve the measure, it would go into effect next April and lift their sales tax to 9 percent from 8.25 percent to raise more than $300 million over 10 years, according to City Manager Bob Deis’ office.

Roughly a third of the new revenue would go to help Stockton exit from bankruptcy and the rest would go to public safety programs and to hire 120 new police officers.

“This is a win-win for everybody,” said City Council member Michael Tubbs before the council’s vote.

Mayor Anthony Silva criticized the measure, saying he had concerns about how its revenue would be used as intended by future city leaders. But he joined the council’s six other members in putting on the November 5 ballot.

The tax measure can be included in Stockton’s plan to adjust its debt, the next hurdle for the city’s effort to restructure its finances, said Michael Sweet, a lawyer with Fox Rothschild in San Francisco who helps municipalities repair their finances.

“It sends a message to the intended audience that the city is working on a global approach,” said Sweet.

That audience is U.S. Bankruptcy Judge Christopher Klein, who so far in Stockton’s case has overseen disputes over spending the city wants to cut, notably cuts in payments to its so-called capital markets creditors.

Klein ruled in April that Stockton could proceed with a plan to adjust its debts, a blow to bond insurers Assured Guaranty and National Public Finance Guarantee. They have led the court challenge to Stockton’s bankruptcy and have tried to block the city’s plan to keep paying into the state pension fund while forcing losses onto bondholders.

Klein has said the issue of pension payments, which the U.S. municipal debt market is watching closely, may be reviewed after Stockton files its plan to adjust its debt. The city aims to file the plan with him in September.

Stockton has said it is preserving pensions to retain and recruit city employees, adding that its workers have already suffered job and pay cuts due to its tattered finances.

With revenue plunging as its housing market crashed, Stockton cut $90 million in spending from 2008 to last year. That included cuts to police while crime jumped and put Stockton on the FBI’s list of the 10 most dangerous U.S. cities.

Concerned deeper cuts would endanger public safety, Stockton’s city council last year approved a bankruptcy filing, hoping it would help them win concessions from its employee unions and creditors to help bolster its finances.

The city’s unions have agreed to concessions and representatives for retired city workers recently agreed to accept a modest $5.1 million from the city to settle disputes over the loss of their subsidized medical coverage.

Stockton and its capital markets creditors are in confidential talks even as they prepare for the next round of litigation over the city’s debt-adjustment plan. Klein may accept or reject it.

Stockton’s city council last month adopted a $159.5 million general fund budget for the fiscal year that began on July 1. The spending plan is balanced by eliminating $12.6 million in payments to creditors along with $9.9 million in subsidies for retired city employees’ health care.

Reporting by Jim Christie; editing by Elizabeth Piper