Officials also warned that disincorporation or bankruptcy each carry major long-term implications.
ISLETON, Calif. — It has been more than a year since the Isleton financial crisis began, and there is still no end in sight. City leaders met Tuesday evening for a presentation on the few paths available to climb out of debt, but none are simple, cheap or guaranteed to keep the city intact.
City Finance Director Jessica Bigby summarized the city’s position: Isleton originally carried about $5.1 million in debt; officials have reduced that to roughly $4.6 million. But Bigby warned the city’s options are limited.
“We are too broke to go bankrupt, and we do not have the pencil-out ability to go into disincorporation,” Bigby said. She and staff recommended the city continue its current approach of slowly paying down the debt.
Two major options were outlined to the council and public.
Chapter 9 bankruptcy would let Isleton seek federal court protection to halt creditor actions and reorganize while continuing to provide essential services. It can give a city time to negotiate or restructure debts, but it is costly, time-consuming and could damage the city’s reputation and future ability to attract investment. Under California rules, a city must prove insolvency and either enter a neutral evaluation process with creditors or declare a fiscal emergency showing it cannot pay bills within 60 days before filing.
Disincorporation, so Sacramento County or special districts take over services, was presented as a last-resort option. Disolving the city would transfer control of services, assets and planning authority to the county, but it would not erase the debt: any outstanding obligations would have to be paid or assumed by a successor agency or the county. The process requires a Comprehensive Fiscal Analysis, review and approval by the Local Agency Formation Commission (LAFCO) and voter approval. The presentation noted disincorporation is extremely rare in California; the last successful cases occurred in the early 1970s.
At the meeting, residents voiced frustration and demanded accountability.
“I think this is really sad,” said one Isleton resident.
“Isleton doesn’t not pay attention to professional advice,” one attendee said.
Another urged, “I think the path forward is accountability. I think we need to finish the audit and clean up the books.”
Officials also warned that disincorporation or bankruptcy each carry major long-term implications for residents, city employees and local services.
Given the constraints, the council asked staff to identify city-owned properties that could be sold to reduce the debt. Bigby said the city cannot apply for grants now because its audits are not up to date; work on those audits is ongoing.
“I have appreciated the citizens of Isleton and how much they have come together and are in support of this city and getting it back on track,” said Bigby.
WATCH MORE ON ABC10 | Sacramento County rejects Isleton’s $800K loan request amid debt crisis