The bankrupt city of Stockton vowed Friday to continue making all its required pension payments to CalPERS even as it forces its Wall Street creditors to accept less than full payment on their debts.
In its closely watched bankruptcy plan, released late Friday afternoon, the city said it will “honor its obligations to fund employee retirement benefits under the CalPERS pension plan.”
The Stockton bankruptcy – along with San Bernardino’s case – has shaped up as a major test of the sanctity of public pensions, generating a showdown between Wall Street and California’s powerful public pension fund. Stockton has indicated, since filing for bankruptcy last year, that it would keep paying CalPERS every penny it’s owed, infuriating bond insurance companies that guaranteed Stockton’s borrowings and would stand to lose millions of dollars. The bond companies tried to get the bankruptcy filing thrown out of court last spring but lost.
The massive plan document submitted to the Stockton City Council by staff members reinforces the concept that CalPERS would be held harmless while other creditors would suffer losses. The city pays CalPERS about $29 million a year, according to officials with the California Public Employees’ Retirement System.
While their pensions would be protected, officials noted that city employees are suffering in other ways. The proposed plan “significantly impairs the interests of former employees and retirees with respect to health benefits,” the document says. It notes that the city in the last three years has slashed its workforce by 30 percent, including a 25 percent cut in police officers.
The council could approve the plan as early as next week and then forward it to U.S. Bankruptcy Court in Sacramento. Ultimately, the plan would go to a vote of the various creditors and then the judge before it can take effect.
Donald Cutler, a spokesman for one of the bond insurers, Bermuda-based Assured Guaranty, said the company wouldn’t comment immediately on the plan. “Our team is reading through it,” he said, referring to the 266-page document.
In a statement, CalPERS said Stockton’s plan follows the law and recognizes “the importance of a secure retirement to its current employees and retirees, and the positive impact that pensions have on recruitment and retention of quality public servants.”
Call The Bee’s Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler