Facing bankruptcy, will Isleton disincorporate? It hasn’t ruled out ending cityhood

Isleton’s interim City Manager Jon Kennedy paused a chaotic council meeting Tuesday night to hold up a black credit card — the only thing, he said, that was keeping the city afloat.

As profanity-laced interjections and the removal of the city’s mayor took focus away from discussion about an $800,000 loan that could help keep the Delta city from bankruptcy, a frustrated Kennedy used the card as a prop to address another distraction: constant beeps coming from Deputy City Clerk Nate Anderson’s computer.

Among other things, Finance Director Jessica Bigby’s credit card will help to renew the city’s Zoom subscription, which was revoked in early August after one of the city’s previous cards declined. The beeping noises came as a result of Anderson’s computer, running the meeting, not having access to a full Zoom account.

Isleton, Sacramento County’s smallest city with about 800 residents, currently doesn’t have a credit card of its own because, according to Bigby, no bank will give them one after a series of poor financial decisions have the city $4.7 million in debt and not much in terms of a viable way out.

Due to the current financial state of the city, Bigby, who has only been a part of Isleton’s staff since January, said the historic town needs to “more seriously” consider bankruptcy and disincorporation as possibilities.

Either way, that would mean the city’s debt would be passed onto citizens as property taxes, which would cost each of the roughly 400 homes north of $11,000.

However, Bigby admitted the city doesn’t have a “vast understanding” of what dissolving as a city would mean for its citizens.

City requests $800,000 loan from county

While the city’s debt is down from over $5 million since Bigby began, she said the situation is still concerning and called its $150,000 in cash flow “very light” at Tuesday’s meeting.

Later in the meeting, council members approved a letter requesting an $800,000 loan from the Sacramento County Board of Supervisors, largely to pay off a $500,000 bridge loan. According to a staff report, the bridge loan will likely bankrupt the city when it defaults in November without the loan from the county. The council approved the bridge loan, from private lender Red Tower, using three city-owned properties as collateral in November 2023.

“We are actively working with county officials and are hopeful that our partners in Sacramento will assist us in navigating this financial crisis,” Bigby said in an email.

Bigby said even if the loan — which she called a “political decision” and not a “sound financial decision” for supervisors — is approved, Isleton will still have to look into bankruptcy and disincorporation.

“If we do not get this loan, and even potentially, if we do, we still have a conversation on the table (about bankruptcy or disincorporation),” Bigby said. “We are very far in debt, and we are digging ourselves out of it as best we can. We don’t have a lot of assets to sell or a lot of money coming in.”

Bigby said property taxes are the main generation of income for Isleton and because that earned amount doesn’t increase significantly from year to year, it is difficult to pull out of the deficit.

Multiple residents, like Mary Costello, who has lived in Isleton for more than a decade, expressed their frustration with the council over previous financial decisions. They specifically criticized the bridge loan that was approved while three elected officials who remain on the council — Councilmember Iva Walton, ousted Tuesday from her role as mayor, as well as now-Mayor David Kent and Councilmember Pamela Bulahan — were in office.

“I came here and I said, ‘OK, who’s going to pay us back?’ And Iva said, ‘Oh, we learned our lesson.’ Well, it looks to me like the lesson you learned was how to multiply that into $800,000 and penalize the city more,” Costello said. “Those of us on fixed incomes are going to have to decide between eating or medicine or paying our sewer bill, and that’s where we are, and that’s where you have put us.

“I can’t believe you can even show your faces in town.”

Walton said she voted for the loan because she was lied to by former City Manager Charles Bergson, who asked the council to reconsider approving the loan after it initially failed by a 3-2 vote, but multiple commenters criticized her and Kent for not managing city staff like Bergson properly in the past.

“Yes, he lied, but I didn’t hear anyone ask questions,” said Mandy Elder, a member of Isleton’s Planning Commission.

Bankruptcy, disincorporation not recommended by city

A drafted response to a June 18 grand jury report that recommended looking into disincorporation and bankruptcy said neither action is recommended by the city council, despite its acknowledgement of the financial mismanagement that put the city in its $4.7 million hole. A written response is legally required within 90 days of the report’s release.

Bankruptcy was not advised because it would trigger defaults and could lead to the city losing its insurance provider with “no feasible alternative within budget,” according to the draft.

The draft response said disincorporation would not allow the city to bypass its fiscal responsibilities and would not be considered by the Sacramento Local Agency Formation Commission unless Isleton demonstrates fiscal stability, which staff said it could not.

What does disincorporating look like in California?

If Isleton were to disincorporate, it would likely get absorbed by Sacramento County and force residents to rely on the county for infrastructure needs and public services.

Despite having already laid off its paid firefighters, contracting policing to the Sacramento County Sheriff’s Office after disbanding its police department more than a decade ago and considering giving some of its financial responsibilities to the county, services it currently provides like zoning rules, public works and city maintenance would go to Sacramento County if Isleton disincorporates.

Only 17 cities in California history have disincorporated and just one under the current process which involves the LAFCO. In the early 1970s, Cabazon in Riverside County disincorporated by a vote of its residents after significant turmoil including recalls of council members and rampant gambling. No California city has disincorporated under that process since then.

The process to disincorporate in California begins with a proposal being made to the local, county-level LAFCO, which then holds hearings and can choose to approve or deny the bid based on whether it thinks disincorporation is in residents’ best interest.

If approved by the agency, disincorporation can go to a public vote among residents for approval. A judge can overturn the ruling, but that did not happen in Cabazon’s case.

Audit delay worries grand jury, expert

In an interview with The Sacramento Bee, Mark Moses, an expert on city finances who has served in finance director roles for multiple cities including Stockton, cautioned that Isleton should not make a decision on bankruptcy or disincorporation before it more fully understands its finances and brings its financial audits up to date.

After researching the city’s financial state, the thing that most concerned Moses was that Isleton only had completed financial audits through 2021, meaning it is more than three years behind, a fact that also worried the grand jury.

Both Moses and the grand jury also noted delayed approvals of budgets that, at one point, led to the budgets for 2021-22, 2022-23 and 2023-24 to be up for a council vote at the same meeting.

Moses said without an audit or an approved budget from the previous year, it is difficult to form a new budget because the city doesn’t have a baseline to build off. He said none of the grand jury’s findings surprised him because of the lack of available audits, which he said may have caused many of the missed payments and debt pile-up.

In a June 10 city council meeting, Bigby said previous city managers said Isleton was making roughly $3 million, but the total revenue on the 2025-26 budget was only just over $1.6 million, even with what she called “wishful thinking.”

According to a report written by Bigby, Isleton’s 2025-26 budget, which was adopted June 10, was built based on “staff knowledge” and anticipations due to a “lack of adequate record keeping.” The report continued by calling the budget a “best guess at a point in time.”

“That’s a very dangerous strategy,” Moses said of Isleton’s approach. “If you don’t even have the advantage of noting last year’s financial results or last year’s budget vs. the actual to see how good a job you did, it’s hard to do a good job.”

Moses said neither he nor the city could make an informed decision on whether to disincorporate or declare bankruptcy due to the lack of financial records available.

“For that to even be an informed discussion, you need to know where you stand financially and, again, if the last statement, last financial reports are from a few years back, then you’re at a huge disadvantage,” Moses said. “You cannot have an informed conversation.”

In an email, Bigby said all completed audits were publicly available and that the city is “developing a plan to prioritize this work.” She also said there is no definitive timeline for when the more recent audits will be released.

Moses also said he was alarmed by the responses Isleton has had to previous auditors and grand juries, which he called not “terribly thoughtful,” saying they failed to address the concerns brought up in a timely manner.

“You’ve got a year to fix it, and so there’s no excuse to not identify the issue,” Moses said. “There’s a huge gap between kind of those best practices, on your toes, way of proactively dealing with the audit finding as opposed to, ‘Oh, they require a response, so we’ll give them a response, and then we’ll kick it up at some later date.’”

What do residents say?

Sebastian Maldonado, 37, was born in Isleton and has attended many City Council meetings since moving back from the Bay Area. He described Isleton as “tight-knit” and questioned whether the city could even file for bankruptcy or become disincorporated due to its financial situation.

“. So I’m not sure how we got here, but we got here, and you do wear a bit of a patch of pride,” Maldonado said. “It would be a bit of a shot in the gut if we disincorporated.”

When asked about disincorporation by The Sacramento Bee after the grand jury report was released in June, Walton teared up at the thought.

“I do with every fiber of my being believe that the city should survive and be its own sovereign city. I think that’s mostly the will of the people,” Walton said. “I’m hopeful that can happen now.”

Others, like Shauna Pellegrini, 55, believe all options should stay on the table until all the information, like past audits, is available. Pellegrini attended last week’s meeting to support her partner, Councilmember Cara Pellegrini, who became vice mayor against her own wishes after Tuesday’s vote to restructure the council.

Former Isleton Mayor Mark Bettencourt was less optimistic, saying the city should have disincorporated more than a decade ago when the debt was smaller, leading to less individual costs for homeowners.

Speaking during the meeting’s public comment period, Bettencourt emphasized the importance of transparency and swift action before the more than $11,000 payment homeowners could be on the hook for increases.

“People need to know where they’re at.”

This story was originally published August 18, 2025 at 5:00 AM.

Sean Campbell

The Sacramento Bee

Sean Campbell is a summer reporting intern covering sports and news at The Sacramento Bee. Campbell is studying journalism at USC and serves as a news editor at the student-run Daily Trojan. He previously covered sports for the Davis Enterprise.