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:
