Stockton bankruptcy: Calif PERS may be on chopping block

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by NW Spotlight

The Fresno Bee is reporting that the judge in the Stockton, California bankruptcy case is leaning towards making the city’s California Public Employees Retirement System (CalPERS) “pension obligations debts that could be trimmed along with those of more conventional creditors.”

CalPERS is fighting being treated equally along with other creditors.

One of the CalPERS attempts was to bring up the state constitution prohibiting the impairment of contracts – but the judge “undermined that theory when he reminded attorneys, ‘bankruptcy is nothing but the impairment of contracts.'”

The Bee article notes “When Detroit filed for bankruptcy, the judge in its case flatly declared that pension obligations would be treated like other debts and could be modified.”

Time reported that Stockton filed for bankruptcy in June 2012, and since then has been “struggling with protracted court battles and stripped city services with little relief in sight.”

Time also reported that “The biggest chunk of Stockton’s debt is the $900 million owed to CalPERS.”

Since CalPERS is the largest part of Stockton’s debt, and thus seemingly the largest reason for their bankruptcy, it’s hard to imagine any logical reason for exempting CalPERS from the ramifications of the bankruptcy.

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Posted by at 05:00 | Posted in PERS, Public Employee Unions, Public Employees Retirement System | 29 Comments |Email This Post Email This Post |Print This Post Print This Post
  • GObill sizemore

    From a purely fiscal perspective, it is hard to imagine a more far-reaching decision than one including pension obligations in a bankruptcy debtor’s dischargeable debts. The dischargeability issue would be appealed of course, but were this court’s decision to be upheld it would then beg the question of whether the obligation to individual pensioners would remain. If so, CalPERS would still be required to dole out the pension checks – even if the City of Stockton doesn’t owe them the money, which suggests that other taxpayers in California would still be on the hook to pay Stockton’s pension obligations. If that is the case, then this case accomplishes little. If the pension obligations to individual retirees is reduced to what the city can afford to pay, then this is a game changer.
    The second question this case raises is in regard to the city’s assets. Would the city be required to sell off assets to meet its pension obligations before any remaining balance could be discharged. Could City Hall, city parks, and all city buildings and land holdings be subject to sale by the bankruptcy trustee? Would the city be required to give up its computers and desks and filing cabinets so they could be auctioned off to pay as much of its debts as possible or will it be allowed to simply reorganize and continue business with a reduced pension obligation. Given the trillions of dollars of unfunded public pension obligations existing across the country, it will be interesting to see where this leads.

    • Tough Love

      I have commented on the observation in your first paragraph. Clearly a pro-active City should refuse to pay any portion of a CalPERS bill not associated with the pensions of it own workers ….. and if not clear, the City should insist on an affirmation from CALPERS that the the bill is ONLY for it’s own workers before paying it.

      • Gopichand Jasoos

        True but Calpers likely has dozens of spin maestros on its payroll 🙂

  • Tough Love

    Good. CalPERS is a major problem and their position is ridiculous.

    And Public Sector Unions …. clearly a CANCER inflicted upon society.

  • Gopichand Jasoos

    Detroit pension cuts have already set a precedent no matter how much Calpers tries to deny it. Calpers is fighting a losing battle. Whether Stockton’s pensions are going to be cut remains to be seen but Klein’s prior comments lead me to believe that he will rule that pensions in CA(gasp) can indeed be cut and are not some Greek mythological creature that cannot be touched no matter whether the edifice that generates the same pensions is coming apart.

  • Jeff

    Raise taxes and cut services is the answer…..

  • Shelby

    With CalPers each employer(city) has its own account.

  • Jonathan

    Thank goodness that few if any government jurisdictions in Oregon are in danger of bankruptcy. And that Oregon PERS, for all its faults and troubles, is still relatively sound and one of the better programs in the country in that respect.

    • guest

      Oregon PERS is so rife with flaws and nonsense, bankruptcy certain to occur so long as private sector wells continue evaporating.
      PERS is not sustainable by any common sense. It sucks like there’s no tomorrow – to wit, twilight time already befalling fiscal sanity.

      • Jonathan

        Only in your PERS-addled dreams!

        • guest

          Enjoy the COLA effused in your watering trough, Jonathan.

          The private sector has none because [in part] diversion to your ‘bubbly’ tub of must haves.

          Too, your kind words do show-to-go, along with mandatory minimum wage increases, arrogant inflationary catalysts in and of themselves, to boot.

        • guest

          Jonathan, in your dreams, moisturized or dry, howl about PPS SuperDerangement, Carole Smith, PERSnatching a pay increase of 33 percent to $257k?

          Ah, yes, another issue of public sector and governmentium running roughshod over private sector desires for rational and fiscal common sense.

          The yoke’s on US, yet we continue to allow the I.P. Freely’s to peon US further with yellow streaming flowing from their dotty governance.

          • Jonathan

            Take it up with the PPS board. Perhaps you could run if you represent the “private sector” so well.

          • guest

            Casey Kitzhaber has struck out for a 3rd time.

            On deck, Dennis Richardson, in a walk can do far better to score points.

  • Jack Lord God

    Seems pretty ridiculous to consider CalPERS as any different than any other creditor.

    I mean I get it, most public employee debates are framed in the context of a jobs program for those employed. They have always come first in any discussion, whether it is about performance (say with schools) or necessity (say Oregon’s Employment Dept.), the needs of those on the government payroll is generally given first priority.

    That’s the kind of thinking that needs to be changed. Government does not exist to provide plum jobs where someone can retire in their mid fifties and make a sweet chunk of change.

    I know it’s hard on those who have been raised to believe this, and who were employed in such a manner, but eventually all things change. This is one of them. Treat CalPERS the same as any bond holder or what have you.

    • Tough Love

      Well Stated !

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