Ruling lets bankrupt city cut pension benefits - Albuquerque Journal

Ruling lets bankrupt city cut pension benefits

SACRAMENTO, Calif. — U.S. bankruptcy law allows the California city of Stockton to cut pension benefits because it can treat its obligations to the public retirement fund like other debts, a federal judge said in a ruling that could help clarify who gets paid first by financially strapped cities around the nation — pension funds or creditors.

Stockton argued that it must make its pension contributions for public employees before its creditors are paid the entire amount they are owned.

U.S. Bankruptcy Judge Christopher Klein ruled Wednesday that federal law and the U.S. Constitution trump special protections that attorneys had argued protects the inland California city’s contract with the nation’s largest state pension fund, the California Public Employees’ Retirement System.

The ruling, which is likely to be appealed, was prompted by a key creditor’s contention that pension obligations should be treated like other debts. Franklin Templeton Investments said the pension payments are fair game as it tries to collect on an unsecured $32.5 million claim against the city, which is about 80 miles east of San Francisco.

Klein said he would announce his decision Oct. 30 on the city’s overall plan to leave bankruptcy and the contention by the investment firm.

If the judge rules against the city’s reorganization plan and forces the city to end its CalPERS contract, Stockton bankruptcy attorney Marc Levinson said employees of Stockton could be forced to take a 60 percent pension “haircut.”

The city’s plan calls for continuing full payments to the state’s pension giant. If the plan is approved by Klein, his ruling on treating pension payments like other debts would have no practical effect, CalPERS attorney Michael Gearin told reporters.

Stockton can afford to pay Franklin Templeton in full over 30 years even if it also keeps making its pension payments, Franklin Templeton Investments attorney James Johnston told Klein.

Stockton, an inland port city of about 300,000 people, became the largest city in the country in 2012 to file for Chapter 9 protection before Detroit made the move last year.

City manager Kurt Wilson said after the hearing that another month’s delay in a final ruling on the city’s future won’t matter as Stockton fights for revival.

Before the recession, Stockton leaders spent millions of dollars revitalizing the downtown area with a new City Hall and building a marina, sports arena and ballpark. The city issued about 3,000 permits annually to build new homes, and it paid police officers premium wages and health benefits.

With the recession, building dried up, and Stockton became ground zero for home foreclosures. Like many residents, City Hall couldn’t pay its bills. The city slashed its budget by millions of dollars and laid off 25 percent of its police officers. Crime soared.

The city wants Judge Klein to approve its plan for reorganizing more than $900 million in long-term debt. Franklin Templeton Investments wants the judge to reject the proposal.

Franklin attorney Johnston said the company is being offered 1 cent on each dollar for a loan given to Stockton in 2009 to build firehouses and parks, and to move its police dispatch center.


Albuquerque Journal and its reporters are committed to telling the stories of our community.

• Do you have a question you want someone to try to answer for you? Do you have a bright spot you want to share?
   We want to hear from you. Please email yourstory@abqjournal.com

Nativo Sponsored Content

taboola desktop

MORE ARTICLES LIKE THIS

1
Pretrial detention changes would worsen MDC conditions, critics say
ABQnews Seeker
Public defender: Keeping more defendants in ... Public defender: Keeping more defendants in understaffed jail likely to cause more crime and more damage to the people being held
2
Experts: 'Ace in the Hole' foreshadowed today's media
ABQnews Seeker
Dark tale chronicled use of public ... Dark tale chronicled use of public manipulation, hysteria
3
Fatal crashes make up the bulk behind $2.5M settlement
ABQnews Seeker
Payments from city were made to ... Payments from city were made to settle 22 cases during a six-month period
4
Omicron cases rise as nations rush to learn more ...
ABQnews Seeker
Scientists urge caution even as countries ... Scientists urge caution even as countries shut borders
5
Citywide heat map released
ABQnews Seeker
July temperatures nearly 17 degrees higher ... July temperatures nearly 17 degrees higher in some areas
6
What the heck is going on at Paseo and ...
ABQnews Seeker
New configuration for bike lane confuses ... New configuration for bike lane confuses many
7
Automatic recounts scheduled for close races
ABQnews Seeker
School board, council contests, ballot question ... School board, council contests, ballot question qualify for new tallies
8
Navajo Nation adds 23 more COVID cases
ABQnews Seeker
Reservation has had a total of ... Reservation has had a total of 1,540 deaths
9
'They have the ability to do this'
ABQnews Seeker
Son's battle to free mom puts ... Son's battle to free mom puts focus on emergency guardianship
10
Face To Face with Sonya Marquez: Fighting crime in ...
ABQnews Seeker
Crime Stoppers enlists public help to ... Crime Stoppers enlists public help to solve cases, bring closure