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Stockton taxpayers want bigger role in California city's bankruptcy case

A woman walks past shuttered businesses in Stockton, California June 27, 2012. REUTERS/Kevin Bartram
A woman walks past shuttered businesses in Stockton, California June 27, 2012. REUTERS/Kevin Bartram

By Jim Christie

SAN FRANCISCO (Reuters) - A group of California taxpayers went to court on Friday to demand a greater role in how the city of Stockton would raise taxes to exit the bankruptcy it filed a year ago.

The group asked the U.S. Bankruptcy Court in Sacramento for official committee status so its members could see details on Stockton's plan for increasing its sales tax. If granted this status, the group could also participate in talks about the city's plan to adjust its debts.

Stockton officials aim to file their debt-adjustment plan with the bankruptcy court in September following a vote by the city council on a sales tax increase.

Stockton's city manager wants the council to hold a vote next month on putting a ballot measure to voters in November that would ask them to raise the city's sales tax to 9.0 percent from 8.25 percent.

If approved by voters, the increase would go into effect next April and raise revenue to help Stockton exit bankruptcy, put more money into public safety programs and hire more police officers to help tackle crime in a city that ranks among the 10 most dangerous U.S. cities.

According to a draft of the tax plan, the increase would raise about $219 million over 10 years for public safety spending.

Over the same time, about $112 million in proceeds would fund the city's exit from bankruptcy. The effort would get a larger share of revenue initially as police staffing ramps up.

The taxpayers group wants more details on how the revenue would be allocated and it is concerned Stockton's creditors could press for a bigger share, which would set back plans for hiring more police officers.

"Creditors will no doubt seek as large a recovery as possible leaving taxpayers with significantly reduced health, safety and welfare services," according to an exhibit attached to the taxpayers group's court filing.

A city of about 300,000 residents in California's Central Valley, Stockton is the biggest U.S. city to have filed for bankruptcy and is trying to impose steep losses on its bond insurers and bondholders to restructure its finances.

The U.S. municipal debt market is watching to see if the Stockton prevails or its so-called capital markets creditors can convince the bankruptcy court to have the city cut its pension spending as part of a plan to exit bankruptcy.

Stockton has refused to cut pensions, saying it is prohibited by state law, and that its employees have suffered several years of pay and job cuts while its retired workers are losing subsidized medical coverage.

(Reporting by Jim Christiel Editing by Lisa Shumaker)

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