Bankrupt Cities

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:

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  1. This sounds like bad news for anyone who cares about the public employee unions looting the country and good news for the unions. It is, however, just the opposite. I wish Stockton luck fucking the bond holders and the public to make good on those pensions. I am sure they and every other government entity in this country that doesn’t have the ability to print their own money will have no problem finding people to loan them money by buying their bonds after the rule becomes “governments can default on every obligation necessary to ensure their pensions are paid”. That ought to work out real well for them.

    1. Exactly, you nailed it, John.

  2. Without looking at any of the financial paper, I’ll be surprised if Stockton isn’t right back in bankruptcy court at some point in nearish future.

    Those kinds of pensions are just too financially burdensome to maintain indefinitely. Sooner or later, they are going to get whacked.

    1. One of two things will happen; either they will be right back in bankruptcy or they will cease to function as anything but a tax collection and pension paying organization and stop all other services to the public.

      And when they come back to bankruptcy court there won’t be anymore bond holders to screw. It is not a question of if but when those pensions get cut or eliminated. The sorry part is that the longer they put that off the worse it is going to be for the pensioners. The union bosses are screwing their own members here. If they cared about their members, which of course they don’t, they would be facing reality and cutting a deal now before they have to live with a worse one later.

  3. My stepada is a retired firefighter for the City of Chicago and unfortunately he believes that he will get his pension forever. I always try to point out to him that the city will one day become too broke to give him anything but all he says is that the city promised him and his ilk the money. It’s maddening because promise or no promise, if the city don’t have the money to give then they are virtually fucked.

  4. In Colorado, some Democrat hack sent out a mailer extolling the virtues of teaching our children responsibility. And one aspect of responsibility is “keeping your promises.” The promise he wants to keep? You guessed it – public sector union contracts, retirement and medical benefits. So, paying the extortionists is a sign of maturity and responsibility.

  5. Jack Starp aint gonna like the way that goes down.

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