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Pensions at heart of Stockton, California’s historic bankruptcy

Stockton Bankruptcy
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Stockton, Calif., has become the first major city in the United States to enter bankruptcy.

U.S. Bankruptcy Judge Christopher Klein said Monday the bankruptcy declaration was needed to allow Stockton to continue to provide basic services and that the city can move forward with a plan to reorganize debt, CNBC reported.

“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.

He added that the creditors had acted in bad faith and had refused to pay their share of the costs for negotiations.

In late June, Stockton became the nation’s largest city to fail financially. Since then, a half-dozen cities have filed for Chapter 9 protection under the U.S. Bankruptcy Code, including the city of San Bernardino, according to the Los Angeles Times.

At issue are state pensions and whether U.S. bankruptcy law trumps California law, which says the pension plan must be funded. Stockton has kept up with its pension payments while it reneged on other debts.

As is the case with many cities in California, the $900 million Stockton owes to the California Public Employees Retirement System to cover pensions is its biggest debt, the Los Angeles Times notes.

The same can be said of many cities in America.

The city’s creditors wanted to keep Stockton out of bankruptcy, arguing that it had not cut spending enough or sought a tax increase that would have allowed it to avoid bankruptcy, CNBC adds.

Much like an iceberg floating in the ocean, Stockton represents the tip that can be seen.

Overly generous pensions, such as the Alameda County administrator making $424,000 a year who will retire soon with a pension worth more than $470,000 a year, as was discussed on The O’Reilly Factor last week.

And stories such as this will become common place in America, as public-employee pension obligations continue to drain cities of their finances.

Tom Tillison


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