Bankrupt Cities

Judge Rules Stockton's Pensions May Be Cut in Bankruptcy

A major blow against the sanctity of public employee pensions in California


In a potentially groundbreaking decision, a federal bankruptcy judge today struck down the sanctity of government pensions in California, saying the city of Stockton has the right to sever its contract with CalPERS.

The verbal ruling from U.S. Bankruptcy Judge Christopher Klein, two years after Stockton filed for bankruptcy, was the decision CalPERS longed to avoid. For the first time, a judge in California has said a city or county can walk away from its CalPERS obligations, the way a bankrupt retail chain can exit a bad lease at a shopping center.

Whether Stockton would sever its CalPERS contract is another matter. City Manager Kurt Wilson told the Sacramento Bee that there's no change in the city's plan to keep paying CalPERS in full and retaining its full pensions. The city's attorney, Marc Levinson, spent the afternoon trying to convince Klein to approve Stockton's financial reorganization plan even with the CalPERS relationship left untouched.