A federal bankruptcy judge in the U.S. Bankruptcy Court for the Eastern District of California has approved a bankruptcy exit plan from the city of Stockton that allows it to continue paying its obligations to the California Public Employees Retirement System (CalPERS) while giving other creditors pennies on the dollar for debts. “This plan, I’m persuaded, is the best that could be done in terms of restructuring the city’s debts,” U.S. Bankruptcy Judge Christopher Klein said at a hearing in Sacramento, California, according to Bloomberg.
Earlier in October, Klein ruled that the city of Stockton may eschew paying its pension obligations, and treat them just like other debts in its bankruptcy plan. The city has reached deals with all of its major creditors, except for Franklin Templeton Investments, which took Stockton to trial. An attorney for the investment firm said the firm is being offered one cent on each dollar for a $35 million loan given to Stockton in 2009 to build firehouses and parks, and to move its police dispatch center. In the lawsuit, Stockton argued that it must make its pension contributions for public employees before its creditors are paid the entire amount they are owed.
According to news reports, during proceedings Stockton often argued its employees have suffered enough in the bankruptcy. In a statement last year, CalPERS said, “The city of Stockton, its employees and its citizens have already endured years of painful cuts, reductions and sacrifices.”
In a statement following Klein’s approval of the exit plan, Anne Stausboll, chief executive officer of CalPERS, said, “The judge recognized that the city’s employees and retirees have already made significant concessions with respect to their pension and health benefits and that further impairing pensions would harm them even more. The City has made a smart decision to protect pensions and find a reasonable path forward to a more fiscally sustainable future. We will continue to champion the integrity and soundness of public pensions—to protect the benefits that were promised to the active and retired public employees who participate in the CalPERS pension plan.”The National Conference on Public Employee Retirement Plans (NCPERS) also released a statement applauding Klein’s decision, saying, “His ruling means the city will be able to emerge from two years of financial uncertainty with its public pensions and public safety services intact… It has been years since city employees have received a raise, salaries for some employees have been cut by as much as 23%, large numbers of employees have been laid off and employees have already lost their retirement health benefits. To further reduce pension benefits as part of a financial reorganization plan would not only have been unfair to the city’s workers, but destructive to the city’s reputation and its ability to provide public services.”