Judge refuses to halt Stockton bankruptcy

SACRAMENTO, Calif. — The city of Stockton, Calif., can continue in bankruptcy as a federal judge Monday rejected legal challenges by Wall Street creditors.

The ruling by U.S. Bankruptcy Judge Christopher Klein means the city of more than 290,000 can continue to seek protection from its creditors as the largest city in America to declare bankruptcy.

In his 90-minute “finding of facts,” Klein portrayed Stockton as having negotiated in good faith with creditors that insured a city pension bond and issued bonds for a downtown redevelopment.

He also declared that the city took major steps to right its fiscal ship, including a 25 percent reduction in its police force and major cuts of city staff and services, after Stockton became ground zero for housing foreclosures and the national mortgage crisis. By the time it sought bankruptcy last summer, the city has slashed $90 million in three years.

He said the city, which last year endured a record number of murders, needed to stay in bankruptcy for its fiscal and social well being. “It is clear that the city would not be able to perform its obligations to its citizens, such as fundamental matters of public safety,” he said.

In a blistering critique, Klein assailed major Wall Street bondholders, Assured Guarantee Corp. and National Public Finance Guaranty Corp., for acting in a heavy-handed manner by refusing to negotiate the city’s bond debt unless Stockton took actions to cut its massive employee pension obligations.