Stockton, the state's 13th largest city, was poised to make the move Tuesday night.
Bob Deis, Stockton's city manager, is pushing the City Council to approve a 60-day mediation process with creditors, the first step required under a new state law before any California city can seek bankruptcy.
"We see no viable alternative to restructuring our finances," Deis said.
Native Stockton residents like John Engelund hope that doesn't happen because it wouldn't be good for a city that has suffered so much.
"It's nothing to be proud of if anybody does that," Engelund said. "I think it would move Stockton even further back."
For years, the city of nearly 300,000 people was flush with cash thanks to the housing boom.
Among its financial mistakes, the city required only one month of service to be eligible for retiree health benefits for life and generous labor contracts that had hidden costs.
The city has twice made Forbes' "America's Most Miserable Cities" list.
Stockton has the second-highest foreclosure rate in the country behind Las Vegas - and city coffers can barely cover the bills.
Insolvency would give Stockton the distinction of becoming the largest American city to file for bankruptcy.
Business owner Douglas Lennard said maybe it's time to wipe the slate clean.
"I think it will validate the bottom here and verify with everyone that the system here is broken and it's in definite need of repair," Lennard said.
Stockton has twice declared a fiscal emergency that allowed the city to force changes in labor contracts. Among the most noticeable is the paring down of police officers to only 300 despite ranking 8th in the U.S. for most violent crime per 100,000 residents.
The Miracle Mile District has had to hire private security because police took so long to respond.
"Unless it's an in-progress crime, maybe someone was shot or stabbed or something like that, the police department has made it very clear, those calls take priority over any cold call that's already happened," said Arnold Chin of the Miracle Mile Improvement District.
The city deficit is about $35 million, but the liability for retiree health benefits is $450 million.
