Officials in Stockton said Tuesday that 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 officials 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.

"Unfortunately we have no comprehensive set of agreements with our creditors that would eliminate the deficit and avoid insolvency," Deis said at a City Council meeting. He said, however, that the city was still negotiating with some creditors and could reach deals with as many as one-third of them.

"We think Chapter 9 protection is the only choice left. If we get any agreements, those will be honored in Chapter 9," Deis said.

The Council was expected to vote later on a special bankruptcy budget to plug next year's anticipated $26 million deficit.