Judge Christopher Klein has approved the conditions proposed for the settlement of Stockton, California’s bankruptcy. Once again, as in the case of bankruptcies in other California cities, CalPERS, the California Public Employees Retirement System is the big winner while all other debtors are the big losers. While there will be no reduction in payments to CalPERS, all other debtors will receive a fraction of what they are owed. Most notably is Franklin-Templeton, who will receive a $300,000 settlement on its more than $34million debt.
Judge Klein gave the green light to cut pensions in an earlier ruling. According to the SACBEE
“Klein compared the Stockton-CalPERS relationship to a retailer using bankruptcy to opt out of a bad shopping-mall lease. “The city’s contract with CalPERS could be rejected,” the judge said to a courtroom packed with lawyers, city officials and retirees.”
Stockton, however, doesn’t have the stomach (or other anatomical parts) required to stand up to the power of CalPERS, so the investment firm, and therefore, its investors will take the hit. This should serve as a warning to any financial institution who wants to do its civic duty, by offering assistance to a California municipality. They, like Franklin-Templeton should expect to be sacrificed at the altar of the mighty CalPERS.
The problem of CalPERS, with its bloated pensions based on bloated salaries, throughout the state, is the albatross on the necks of municipalities who are drowning in debt. San Jose and San Diego have attempted to reduce pensions through voter approved initiatives meant to improve the financial health of these cities.
But as Steven Greenhut explains:
“The courts gutted the most significant part of the San Jose initiative. And while San Diego continues to implement its reform, Brown’s appointees to the union-controlled Public Employment Relations Board have been suing the city to stop the voter-approved measure. PERB claims the public vote was illegal because the city first had an obligation to negotiate with the unions representing the new workers who will face lower benefit levels. Union demands even trump the right to vote, in the administration’s view.”
Could the Stockton bankruptcy be the beginning of more to come in other California cities who must sacrifice city services and financial viability to support impossible agreements to a retirement system they cannot sustain? Can we learn from Detroit-whose pension system played heavily in its demise-before every city in California becomes a wasteland?