Bankrupt Stockton’s Reorg. Plan Approved with Pensions Intact

A federal bankruptcy judge ruled earlier in the month that
California public employee pension funds are not immune from having
their debts reduced as part of a municipal bankruptcy
reorganization. I
warned at the time this didn’t necessarily mean the judge
would require a city to do so. He was just asserting that
pension funds were not immune. The city in question, Stockton, had
not asked to reduce or forgive any pension debt as part of its
bankruptcy plan, but another creditor was upset at the idea that it
could be required to accept just a ninth of what it’s due while the
pensions remained unaffected.

Today that same judge accepted the bankruptcy reorganizational
plan put forth by the city. So despite warning that pensions could
be cut, he will not force the city to do so. Judge Christopher
Klein explained that the workers have had to face many other
cutbacks already. From the
Los Angeles Times:

On Thursday, Klein said that workers had already taken hits in
the bankruptcy. He said Stockton’s salaries and benefits for
workers had been higher than those at other cities, but that
workers had agreed after the bankruptcy filing to take big cuts,
including eliminating the free medical care they received in
retirement.

“It would be no simple task to go back and redo the pensions,”
Klein said Thursday.

Steven Greenhut previously noted the many huge perks Stockton
employees had been receiving. That health plan they gave up was
described as a “Lamborghini” of health plans, providing free care
for the worker and a dependent for the rest of their lives with no
co-pays or premiums. Read more about the state of Stockton
here and try to guess whether (and how long it will take) for
Stockton to slide back into the red An estimate from a firm hired
by that one resistant creditor predicts Stockton will be paying
nearly a fifth of its revenue to employee pensions by the end of
the decade, almost twice what it’s paying now.

Below, ReasonTV on Stockton’s financial problems: