Different pension rulings expected in Stockton, Detroit bankruptcies

Bankruptcies are test cases for pensions
Stockton employees and retirees avoided pension cuts when a federal judge last week approved the San Joaquin Valley city’s plan to emerge from bankruptcy. Stockton, above, is one of two inland seaports in California.
(Luis Sinco, Los Angeles Times)

Stockton employees and retirees avoided pension cuts when a federal judge last week approved the San Joaquin Valley city’s plan to emerge from bankruptcy.

U.S. Bankruptcy Court Judge Christopher M. Klein opted to protect pensioners’ payouts despite ruling earlier that Stockton, population 298,000, could break a contract with the California Public Employees’ Retirement System.

But that doesn’t mean that municipal employees — in California and across the country — have nothing to worry about if their governments seek protection from creditors.

All they have to do is look to Detroit, the nation’s biggest town to go bust, to see what could happen to retirees’ monthly checks. A bankruptcy judge Friday is expected to approve a Motor City plan to end its bankruptcy that pares pensions by 4.5%.


The different rulings in Stockton and Detroit “are two test cases for local government insolvency,” said Michelle Wilde Anderson, a Stanford Law School professor. “Retirees ... are watching them closely.”

Meanwhile, voters in another bankrupt city, San Bernardino in the Inland Empire, vote Tuesday on a ballot measure that would change the way that police and fire pay is calculated.

The city, population 214,000, now pegs base salaries to the average of 10 similarly sized California cities, including much more wealthy enclaves such as Irvine and Santa Clarita. Proponents want to rein in what they say is inflated public safety pay that’s eating up more than three-fifths of the city’s general fund. Instead, police and fire pay would be set by collective bargaining agreements with unions.

Unions oppose the measure, contending that members would flee to new jobs elsewhere.


The vote is expected to be discussed Thursday at the city’s next bankruptcy court hearing.

Big money

Businesses have lined up to give more than $100 million to promote or defeat a pair of initiatives on the California ballot Tuesday. Among the donors are health and medical malpractice insurers, trial lawyers, doctors, dentists and hospitals.

Proposition 45 would give the elected insurance commissioner the power to reject health insurance premiums deemed excessive. Proposition 46 would raise a four-decade-old $250,000 cap on non-economic damages in malpractice law suits and force physicians to get drug tests.

Though personal injury lawyers are backing Proposition 46, the bulk of the big money is paying for the television-heavy No campaigns against the two measures.

Why so much money? California is an enormous state with a large population and half a dozen significant TV markets, says Robin Swanson, a spokeswoman for No on 45.

That’s only part of the reason, adds Phillip Ung of California Forward, a government reform group.

“It’s a business decision, a cost-benefit analysis and a risk,” he says. “If they are successful at killing the initiatives, they will have saved ... a whole lot of money in compliance.”


Twitter: @MarcLifsher

Get our weekly California Inc. newsletter