Tuesday, 26 June 2012

What will happen to Stockton Marina in municipal bankruptcy?

Tonight, Stockton City Council will likely approve a “pendency” budget that will serve as the City’s budget during bankruptcy.  The City will likely be officially file for bankruptcy protection tomorrow.

Already, the City has missed payments on 3 bonds, and as a result have already lost 3 parking garages and an 8 story office building (former WAMU building) slated to be the new city hall to creditors.  The pendency budget for 2012-13 completely eliminates debt service payment on several additional bonds and loans; the largest being nearly $6 million due in the next fiscal year on over $130 million in Pension Obligation Bonds that were sold in 2007.  The largest single budget cut is slashing $7 million in retiree healthcare subsidies with full elimination next year.

Now that the City has lost the parking garages and office building, it is particularly interesting to see that happens to any other City owned real estate that has some revenue generating potential for its creditors.  The immediate things to come to mind are the waterfront entertainment venues: arena, marina, and ballpark; all of which are losing money but do generate a revenue stream.

The proposed 2012-13 pendency budget states, “eliminate appropriation for payment of debt service on the State Department of Boating and Waterways Marina loan - $685,000."  However, when it comes to other waterfront entertainment venues (like the arena and ballpark), the city is reducing but not eliminating the general fund operating subsidy.  Thus, the City seems to have signaled that it is more willing to give up the marina than the other waterfront venues.

The State is not seen by Stockton City officials as being particularly helpful with its budget woes due to swiping redevelopment funds, realignment, inaction on pension reform (the City uses CalPers and does not have its own pension fund like San Jose), imposing the AB 506 process on bankruptcy, and sending the Comptroller in for an audit that costs the City time and money.  Add that to the burdens of the Delta Plan (both real and perceived), and I doubt anyone at City Hall feels particularly terrible about defaulting on a loan to a State Agency relative to all the other painful cuts.

Because of bankruptcy protection, Boating and Waterways will not be able to take immediate possession of the marina in the way Wells Fargo sued for the parking garages and office building after default.  I expect the City should continue to operate the marina through the bankruptcy period.

But it will be very interesting to see how Boating and Waterways approaches the loan default, and who will be operating the marina long-term.  DBW is in a tough spot.  Maybe it is another opportunity for American Lands and Leisure which recently took over operations at Brannan Island State Recreation Area.

About the Author

Ethan Jacob

Author & Editor

I am Ethan Jacob Executive Director of the Center for Business and Policy Research at the University of the Pacific, where I have a joint faculty appointment in the Eberhardt School of Business and the Public Policy Program in the McGeorge School of Law..

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