Thread: Judge approves Stockton bankruptcy plan; worker pensions safe

Judge approves Stockton bankruptcy plan; worker pensions safe


By MARC LIFSHER, MELODY PETERSEN contact the reporters

Stockton won't be forced to slash worker pensions, bankruptcy court rules

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 earlier this month that the city’s payments to the California Public Employees’ Retirement System could be cut in bankruptcy just like any other obligation.


Stockton won court approval of its plan to exit bankruptcy by paying bond investors pennies on the dollar while fully protecting public worker pensions.

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 its 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.


Related story: Stockton bankruptcy ruling will decide fate of public pensions Marc Lifsher, Melody Petersen


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.

In court, the city has repeatedly argued that employees have suffered enough in the bankruptcy. The city no longer gives retirees free medical care.

Salaries have been cut for some employees by as much as 23%. New hires now get sharply reduced pensions. Many of the bonuses have been eliminated. And employees must now pay for part of their pensions — rather than having the city pick up their share.

It was a different story beginning in the 1990s when 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 officers and firefighters could retire at 50, and other city employees could retire at 55. All employees received free medical care in retirement with plans that didn't require co-pays.

There were bonuses "for almost everything imaginable," Miller explained in a video she created in 2012 to explain why the city had been forced to seek bankruptcy protection. "If 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 do with your job. "

Stockton employees made pension spiking into an "art form," she explained, "using overtime and add pays in their final working years to secure much larger pensions for the rest of their lives."

As a result, the city now pays the equivalent of 41% of police salaries to CalPERS for future pensions — an amount that will increase to 57% in five years, said Charles Moore of Conway MacKenzie, a Michigan consulting firm hired by Franklin Templeton Investments, a party in the bankruptcy case.

Using the city's own long-range estimates, Moore showed that by 2019, the city would be paying 18.5% of its general revenues to CalPERS — up from about 11% today.

Those high and growing pension costs, he warned, could lead to Stockton being forced to declare a second bankruptcy.

http://www.latimes.com/business/la-f...029-story.html

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http://www.alipac.us/f19/stockton-ma...cy-law-251467/

2/23/2012