A bankruptcy judge on Thursday afternoon approved the bankruptcy plan of Stockton, California. As part of the plan, the pensions of city workers will remain intact.
Creditors, on the other hand, will not be so lucky. From the LA Times:
A federal bankruptcy judge approved the city of Stockton’s 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 city’s payments to the California Public Employees’ Retirement System could be cut in bankruptcy just like any other obligation.
If Judge Christopher M. Klein had rejected Stockton’s 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 couldn’t 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 city’s current bill to the pension plan.
On Thursday, Klein said that workers had already taken hits in the bankruptcy. He said Stockton’s 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.
“It would be no simple task to go back and redo the pensions,” Klein said Thursday.
He added, “This plan, I’m persuaded, is the best that can be done.”
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 “square one.”
The city’s 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 city’s plan so that it could get more of its money back.
CalPERS Chief Executive Anne Stausboll said of the decision:
“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.”