Stockton in California's Central Valley is facing a moment of decision on whether to become the biggest American city to file for bankruptcy, as the deadline for talks with creditors approaches late Monday.

City Manager Bob Deis says officials are still hoping to reach a deal that would restructure millions of dollars of debt under a new state mediation law designed to help municipalities avoid bankruptcy.

Meantime, the Stockton City Council is scheduled to decide Tuesday whether to adopt a special budget in case of a bankruptcy declaration. The city would stop debt payments, reduce pay and benefits and increase parking citations, CBS Sacramento station KOVR-TV reports.

Deis says Stockton's lawyers could file for Chapter 9 protection in court as early as Wednesday.

City officials have promised that if they file for bankruptcy and adopt a special budget, there will not be cuts to services like the police and fire departments.

Stockton's property taxes and other revenues have significantly declined in recent years, while expensive investments and generous retiree benefits have drained city coffers. (MORE)