Stockton, Calif., to enter bankruptcy, judge rules
SACRAMENTO, Calif. — The people of Stockton will feel financial fallout for years after a federal judge ruled on Monday to let the city become the most populous in the nation to enter bankruptcy.
The case is being watched closely because it could answer the significant question of who gets paid first by financially strapped cities — retirement funds or creditors.
“I don't know whether spiked pensions can be reeled back in,” U.S. Bankruptcy Judge Christopher Klein said.
The potential constitutional question in the Stockton case is whether federal bankruptcy law trumps a California law that says money owed to the state pension fund must be paid.
In making his ruling, Klein disagreed with creditors who argued that Stockton failed to pursue all avenues for straightening out its financial affairs.
“It's apparent to me the city would not be able to perform its obligations to its citizens on fundamental public safety as well as other basic government services without the ability to have the muscle of the contract-impairing power of federal bankruptcy law,” Klein said.
A statement released by creditors said the group “respectfully disagrees with the court's ruling.” The legal team for those creditors declined to say whether it would ask Klein for permission to appeal his decision — a requirement of bankruptcy code. Legal observers expect the creditors to aggressively challenge the repayment plan presented by Stockton in the next phase of the process.
Stockton has tried to restructure some debt by slashing employment, renegotiating labor contracts, and cutting health benefits. Library and recreation funding have been halved, and the scaled-down police department only responds to emergencies in progress. Its crime rate is among the highest in the nation.
Since cities can't liquidate assets, those that declare bankruptcy must come up with a plan for creditors to forgive some of the debt.
Holders of the biggest portion of Stockton's debt insured $165 million in bonds the city issued in 2007 to keep up with payments to the California Public Employees Retirement System as property taxes plummeted during the recession.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Cincy officer indicted on murder charge in fatal shooting of motorist
- Feds accuse Philadelphia congressman Fattah of corruption
- Calif. oil slick expected to dissipate
- Clinton to testify before House committee on Benghazi in October
- 911 dispatcher hung up on caller before wounded teen’s death in June
- Planned Parenthood requests expert study
- Defense memo reveals plan to protect transgender troops
- Cruz switches targets, takes exception with IRS practices
- University of New Hampshire language guide panned
- Compromise keeps highway accounts funded
- House approves bill targeting VA staffers