Stockton, California will be the latest and largest U.S. city to seek federal bankruptcy protection.
The city council voted 6 to 1 to file for bankruptcy under Chapter 9 of the federal bankruptcy code, under which a judge would decide how the city would pay off its debts.
Some city residents appealed to the council not to declare bankruptcy. They say their property values would plummet. Past and present city employees fear they will lose their health benefits. But Mayor Ann Johnston and city managers say they have no choice.
The city of some 300,000 residents, about 135 kilometers east of San Francisco, is facing a $26 million budget deficit, caused, in part, by the collapse of the housing market, mismanagement and a large city workforce.
City officials already have laid off some police and firefighters to curb spending.