Stockton City Wants Pensions to Pay for Its Financial Troubles

by San Antonio Attorney

Stockton, California wants bondholders to cover its financial troubles while making it possible for retirement benefits to remain intact. It is unjust and undercuts the power of the law to control in errant pension costs. The judge who is overseeing the City’s case ought to require its representatives to modify their position.

This tale of rags-to-riches is becoming more popular. The housing market boom stuffed the city’s coffers with tax revenue that government officials misused through mismanagement, pay increases and downtown improvements. The housing bubble resulted in $90 million in budget cuts and a bankruptcy filing.

The plan of Stockton to make things right consists of a bondholder haircuts. The cut could be up to 83%. However, government officials would still fork out around $30 million annually to the California Public Employees’ Retirement System, which handles the pensions.

Stockton has to make an outright payment to Calpers to avoid the risk of losing workers and recruits who want to get substantial retirement packages. Furthermore, California is likely to prohibit reducing public pensions. And this could induce a rough political backlash.

On the other hand, bondholders owed over $300 million have cried foul. Under legal standing, the securities they hold should be treated the same in bankruptcy as Calpers payments. Stockton has refused to work through with the fund and has not attempted in “good faith” to make an arrangement, a requirement for municipal bankruptcies. For this reason bond insurers and bondholders and have asked U.S. Judge Christopher Klein to turn down Stockton’s filing.

Central Falls, Rhode Island, which emerged from bankruptcy about 6 months ago, proved that a municipality can cut retirement benefits or pensions without a legal or political fire storm. Moreover, bankruptcy law most likely beats arguments that reductions of retirement benefits would defy state law.

The public pension system of the United States has a shortfall of more than $700 billion.

 

– While a municipal bankruptcy has similarities with personal bankruptcy, it is different because there is no provision in the law for assets liquidation and distribution of the proceeds to creditors. If are planning to file for personal bankruptcy, it is important to talk to a San Antonio Attorney who is experienced in handling bankruptcy cases.

Leave a Comment

Previous post:

Next post: