Planning is Peace of Mind

Court Paves the Way for City of Stockton Bankruptcy

The City of Stockton’s bankruptcy application was accepted today (April 1, 2013) by U.S. Bankruptcy Judge Christopher Klein, making Stockton the most populous city in the nation to enter bankruptcy protection.

“It’s apparent to me the city would not be able to perform its obligations to its citizens on fundamental public safety as well as other basic government services without the ability to have the muscle of the contract-impairing power of federal bankruptcy law,” Klein said.

The city based its salaries, benefits and borrowing on anticipated long-term developer fees and property tax revenue increases. But those fees and revenue increases were lost during the recession that was marked by a rash of foreclosures and a 70 percent decline in the city’s tax base.

The California Public Employees’ Retirement System (CalPERS) is the city’s biggest creditor, to which it owes $900 million to cover employee pension promises. To date, Stockton has kept up with pension payments while it has reneged on other debts, maintaining that it needs a strong pension plan to retain its pared-down workforce. Stockton also has the most generous health care benefit system in the state — coverage for life for all retirees plus a dependent, no matter how long they worked for the city.

Stockton’s Chapter 9 bankruptcy will being closely watched nationally, and its repayment plan will surely be challenged by its creditors.

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