Stockton bankruptcy: Federal judge hints that pensions ‘can be adjusted’
The California city of Stockton’s bankruptcy case took an interesting turn yesterday. The big question surrounding the city’s bankruptcy has always been what might happen to city employee pensions. Most government advocates assumed that these pensions would remain untouched no matter what happened to Stockton’s finances. Now the federal judge in charge of the bankruptcy...
The California city of Stockton’s bankruptcy case took an interesting turn yesterday.
The big question surrounding the city’s bankruptcy has always been what might happen to city employee pensions. Most government advocates assumed that these pensions would remain untouched no matter what happened to Stockton’s finances.
Now the federal judge in charge of the bankruptcy proceedings has hinted that government employee pensions might not be as untouchable as first thought.
“Commenting during a hearing on Stockton’s bankruptcy case, U.S. Bankruptcy Judge Christopher Klein suggested that employees and retirees could have their pensions reduced to facilitate the city’s financial reorganization. ‘I might be persuaded that … the pensions can be adjusted,’ Klein said.”
The outcome of Stockton’s bankruptcy is still far from certain, but it may follow the course of Cedar Falls, R.I. and Pritchard, Ala.. Those cities had their public employee pensions cut as part of their bankruptcy negotiations. In Pritchard, some pensions were cut by as much as 55 percent.
Stockton’s bankruptcy could have broad implications across the country, including in Illinois.
If outcomes in Detroit, Cedar Falls, Pritchard and now possibly Stockton are any indication, federal courts may conclude that state-constitutional protections of pension benefits don’t apply to federal bankruptcy cases.
Without real pension reform in Illinois, bankruptcy, and the drastic pension cuts that could come with it, may become an appealing option for local municipalities looking to resolve their fiscal crises.