​Stockton Bankruptcy Delays Public Employees Retirement

Staff Reporter
Aug. 5, 2014

Stockton is eligible for bankruptcy protection after Wall Street creditors claimed the city was not, and it’s a battle over employee pensions while reorganizing its debt.

U.S. Bankruptcy Judge Christopher Klein found that the California city can move forward, but Stockton’s creditors alleges that it’s all in bad faith by refusing to negotiate.

“The creditors got a big black eye today,” said Karol Denniston, an attorney who helped draft the legislation that guided Stockton’s mandated mediation before filing for Chapter 9 protection. “Now the stage is set for the real dogfight.”

In late June, the port city of 300,000 became the largest U.S. city to fail financially. At that time, Stockton stopped bond payments, slashed employee healthcare benefits and made further cuts to a strapped budget that already had forced the police department in California’s second-most-violent city to shrink by 25%.

During a three-day hearing that ended last week, Stockton officials testified that creditors had walked away from the table and refused to pay their share of negotiation fees because the city did not include cutting payments to the state’s employee pension plan, CalPERS, in its reorganization plan.

The $900 million that Stockton owes to the California Public Employees Retirement System to cover pensions is its biggest debt, as is the case with many cities in California. 

Assured Guaranty, one of Stockton’s major creditors, issued a statement Monday disagreeing with the judge’s decision.

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