Dan Walters: Stockton has difficult road ahead

07/31/2013 12:00 AM

10/02/2013 6:52 AM

Stockton no longer suffers the ignominy of being the largest city to seek bankruptcy protection, thanks to Detroit, but it still faces a very long and difficult journey before its municipal finances recover – if, indeed, they ever do.

Bob Deis, who was hired to manage the city's sojourn through insolvency, is pursuing a two-pronged strategy:

Persuade – or force – those who bought a quarter-billion dollars in city bonds, or their insurers, to accept cents on the dollar through the bankruptcy.

Persuade city voters to approve a ¾-cent increase in the sales tax to generate another $28 million a year, most of which would be spent to replenish the much-depleted ranks of the crime-ridden city's police force.

Deis, who plans to step down as city manager later this year, has waged fierce political battles with the city's police union over cuts and with bondholders and their insurers over their contention that pension obligations should be trimmed as well.

Most recently, he's dueled with the city's new and mercurial mayor, Anthony Silva, who had a tax plan of his own that Deis said would be counterproductive.

Deis won his fight with Silva over taxes and the mayor, albeit reluctantly, joined other City Council members in voting to place the city manager's tax plan on the November ballot.

It's an integral component of the city's effort to demonstrate to a bankruptcy judge that it has a viable recovery plan and hinges on whether the city's understandably skeptical voters accept officials' assurances that there is light at the end of the fiscal tunnel.

But is there?

Without the new revenues, a budget projection developed for the city's negotiations with its major creditors says Stockton will see multimillion-dollar deficits for the foreseeable future and even if it got about $10 million a year in "debt relief," those deficits would shrink only slightly.

The new taxes, if approved, would result in small surpluses initially, but the city could see deficits return later in the decade.

That's political ammunition for opponents of the new taxes, and a pending audit by the state Controller's Office could provide foes with more.

The draft audit says city officials routinely raided special accounts, including those for street repairs, to offset chronic general fund shortages and ignored signs of fiscal distress as the city issued more debt.

The audit found that Stockton's poor accounting creates "the potential for waste fraud and abuse of public resources."

Such words are potent campaign fodder, and Deis seems to sense it. This month, he responded by alleging that "the state Controller's Office is more interested in scoring political points than supporting good governance" and "appears to be just another political operative that 'bayonets the wounded' after the battle has been fought to repair a distressed city."

Call The Bee's Dan Walters, (916) 321-1195. Back columns, www.sacbee.com/walters. Follow him on Twitter @WaltersBee.

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