Judge approves Stockton bankruptcy plan; worker pensions safe
By Marc Lifsher, Melody Petersen
October 30, 2014 - Los Angeles Times
A federal bankruptcy judge approved the city of Stocktonfs bankruptcy
recovery plan, allowing the city to continue with planned pension payments to
retired workers.
The case was being closely watched after the judge ruled this month that the
cityfs payments to the California Public Employeesf Retirement System could be
cut in bankruptcy just like any other obligation.
If Judge Christopher M. Klein had rejected Stocktonfs plan and forced the
city to slash its payments to CalPERS, it could have opened the door for other
cities struggling with escalating pension costs to follow suit.
Stockton officials had argued that they couldnft afford to cut pensions or to
create another retirement plan for city employees. They said employees would
leave Stockton for other cities offering retirement benefits through
CalPERS.
CalPERS had said that if Stockton left the state retirement system, the city
would immediately owe it $1.6 billion -- far more than the cityfs current bill
to the pension plan.
On Thursday, Klein said that workers had already taken hits in the
bankruptcy. He said Stocktonfs 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.
gIt would be no simple task to go back and redo the pensions,h Klein said
Thursday.
He added, gThis plan, Ifm persuaded, is the best that can be done.h
Klein said that rejecting the plan after two years in court and tens of
millions of dollars in legal and other fees would have put the case back to
gsquare one.h
The cityfs plan slashes payments to other creditors, including Franklin
Templeton, an investment firm that holds more than $36 million in bonds the city
used to borrow money. Franklin had asked Klein to reject the cityfs plan so that
it could get more of its money back.
Franklinfs financial expert used the cityfs own projections to show that it
would soon be paying CalPERS nearly 20% of general tax revenues – up from 11%
today.
Franklin had argued that the increasing cost of pensions would put the city
at risk of another bankruptcy.
But Klein said Thursday that Stocktonfs plan for paying creditors over the
years was adequate and passed all legal tests.
Kurt Wilson, the cityfs manager, said after the ruling that it gconfirms that
Stockton is fiscally stable and on the road to recovery.h
gWe are going to have stability that impacts our ability to attract and
retain employees,h he said.
CalPERS Chief Executive Anne Stausboll praised Kleinfs decision.
gThe City has made a smart decision to protect pensions and find a reasonable
path forward to a more fiscally sustainable future, she said. hWe 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.h
In recent years, pensions have been a political hot potato in Stockton.
Overly large pensions approved by city officials for employees are among the
reasons Stockton found it could no longer pay its bills, critics say.
Beginning in the 1990s, the city and employee unions negotiated such high
salaries and benefits that pay packages were more than 25% above what other
cities were offering, said Kathy Miller, a Stockton city councilwoman.
Police and firefighters could retire at 50, while other city employees could
retire at 55. All employees received free medical care in retirement with plans
that didnft require co-pays.
There were bonuses gfor almost everything imaginable,h Miller had explained
in a video she created in 2012 to explain why the city had been forced to seek
bankruptcy protection. gIf you drove the front of a fire truck, if you drove the
back of a fire truck, if you got a degree or certificate, even if it was for
something that had nothing to with your job.
gStockton employees made pension spiking into an art form, using overtime and
add pays in their final working years to secure much larger pensions for the
rest of their lives.h
Stocktonfs promised pensions for police and fire employees are some of the
highest paid in the state, according to an analysis by Franklinfs expert. The
city is now paying the equivalent of 41% of police salaries to CalPERS for
future pensions – an amount that will increase to 57% in five
years.