Calif. city could be biggest to declare bankruptcy

Stockton Mayor Ann Johnston on city's financial troubles

This is a rush transcript from "Your World," June 27, 2012. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST OF "YOUR WORLD": Now to the woman, really, at the epicenter of all of this, the mayor of Stockton, California, herself, Ann Johnston.

Mayor Johnston, very good to have you.

How are you holding up? How is your city holding up?

(CROSSTALK)

ANN JOHNSTON, MAYOR OF STOCKTON, CALIFORNIA: Well, we're -- we are still holding up, and we are all still standing and we are going to move forward.

CAVUTO: What -- what are the odds that you file for bankruptcy?

JOHNSTON: Well, I am not giving any odds these days because we have a lot of actions to take before that happens. And the major one being a budget approval tonight that will move us forward, so I am not an oddsmaker, I'm not a bookie, so I cannot tell you.

CAVUTO: A lot of folks say, Mayor, though, that you are kind of using this crisis to scare the you know what out of folks there, to say, look, you don't do this, this is the only alternative, this is the only option. Are you doing that?

JOHNSTON: No, absolutely not. We have spent three-and-a-half years cutting major portions of our budget to avoid the situation we're in right now.

Right now, we have hit the wall. We are going to run out of cash. We need to make some hard decisions so that we can restructure our finances and go forward and, more importantly, continue the services that our citizens have today. And, so, we need to make sure that we don't cut any more in our police and fire and other services, because the health and safety of our community is crucial.

And so, that is why we are looking at a budget that looks out to other creditors for relief from the situation that we have.

CAVUTO: All right, then the only alternative, should you not get concessions from those creditors, is to hike taxes, right?

JOHNSTON: Well, taxes at this point in time are not feasible. We are a community that is dealing with high foreclosures and high unemployment, and we believe that we need to get our fiscal house in order first.

(CROSSTALK)

CAVUTO: No, no, no doubt. But I guess when you said, Mayor, that cutting more police, firemen, I guess public worker-related costs, I don't know if that extended to pension and health care benefits, then those are your only other options, right?

JOHNSTON: Well, that is right.

I mean, we have done all the cutting we are going to do. Option one was cutting even further. Option two was a mediated settlement in our mediation process and option three obviously is filing Chapter 9.

So it is a process. We have been very careful to go through and try and do everything possible to avoid being in this situation in which we find ourselves.

CAVUTO: Real quickly, of course, if a bankruptcy is entertained, all public contacts are null and void, abrogated, you could just renegotiate all public contracts. A lot of your critics, Mayor, say that is secretly what you want. What do you say?

JOHNSTON: No.

We need to be able to pay our bills, pay our employees and we need to remain solvent. And so, a bankruptcy judge, if we were to file for Chapter 9, would determine which creditors got what. And we're always talking to our employee unions. We have been negotiating all along, and we will continue to negotiate.

CAVUTO: All right, Mayor, thank you very, very much.

We are watching very closely. Again, for those of you just tuning in, tonight we should know whether a premier American city goes bankrupt. We will keep you posted.

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