Officials in Stockton say mediation with creditors has failed, meaning the city is set to become the largest American city ever to declare bankruptcy.
City Manager Bob Deis said Tuesday that they were unable to reach a deal to restructure hundreds of millions of dollars of debt under a new state law designed to help municipalities avoid bankruptcy.
Monday marked the three-month deadline for negotiations.
The City Council voted Tuesday evening to approve a special bankruptcy budget to plug next year's anticipated $26 million deficit. The budget will suspend debt payments, reduce payments for retiree medical benefits and increase revenue through code enforcement and parking citations, among other steps.
City lawyers would have to file for Chapter 9 protection in court by Friday.
The river port city of 290,000 in Central California has seen its property taxes and other revenues decline, while expensive investments and generous retiree benefits drained city coffers.