California City to Become Largest to File Bankruptcy

(CNN) -- The California city of Stockton approved a special budget Tuesday night, paving the way for it to become the largest American city to declare bankruptcy.

"Unfortunately, we have no comprehensive set of agreements with our creditors to offer you ... that would eliminate the $26 million budget deficit and avoid insolvency," City Manager Bob Deis said at a council meeting.

Negotiations, however, continue with some creditors.

"I think we're very close in announcing some possible deals with some creditors in the future," he said. "In fact, it could be as many as a third of the creditors ... that's not enough to balance the budget."

The city council approved the pendency plan on a 6-1 vote, meaning Stockton will file for protection under Chapter 9 federal bankruptcy laws before Sunday when the new fiscal year begins.

The plan is essentially a new budget for the city of about 291,000, spelling out day-to-day operations under bankruptcy.

The city says it will continue to pay employees, vendors and service providers, but curtail most other expenditures, such as debt service.

Numerous governments across the country have filed for bankruptcy since the financial crisis of 2008.

Last year, Jefferson County, Alabama, filed the biggest municipal bankruptcy in U.S history. In December, the county was $4.2 billion in debt.

The largest previous municipal bankruptcy case was filed in 1994 by Orange County, California, which owed approximately $1.7 billion to creditors.

CNN's Ed Payne contributed to this report.