With the city of Stockton, California preparing for mediation to avoid a bankruptcy filing, the media and the public have been throwing blows back and forth over the municipality. This city will now have to sit down and have mediations with its employee unions, the retirees and all of their creditors.
The mediation is going to be done in secret and confidential, said bankruptcy attorney James Spiotto who is a nationally recognized bankruptcy attorney regarding municipalities. Spiotto said that it’s normal for the basic rock throwing between sides when mediation is going on. Recently, the city manager of Stockton, Bob Deis, and representatives from employee unions have been accusing each other of lying to spin the truth and protect their own interest.
With the public feud brewing, many wonder if filing bankruptcy is better. Filing bankruptcy would allow the bankruptcy court to make the tough decisions that obviously will be fought over across a table. The mediation is supposed to last 60 to 90 days and longer if necessary. Having the proceedings confidential will take away from any public grandstanding.
The state implemented AB 506 in California law to try and keep many financially strapped cities away from filing bankruptcy in the court system. The mediation will force the cities to do everything in their power to negotiate themselves and avoid a bankruptcy filing.
On Tuesday, the Stockton City Council reviewed and approved a plan proposed by the city manager that will suspend its debt payments, while extending its fiscal state of emergency status. The City Council unanimously agreed upon starting the mediation process to avoid the bankruptcy filing. This city has set aside $3.5 million for the mediation. Included in the cost to the city will be the mediator, lawyers and they also will be required to pay some of the legal fees of the creditors. Knowing the endgame being filing bankruptcy will hopefully make the parties more agreeable. The cost of bankruptcy and a bankruptcy attorney would add additional stress to the city of Stockton.
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