Judge Rejects Bid to Keep Stockton in Bankruptcy

by | January 21, 2015

By Dale Kasler

A bankruptcy judge Tuesday dismissed an effort to keep Stockton mired in bankruptcy while a creditor challenges a decision that lets the city pay its CalPERS pension bills in full.

U.S. Bankruptcy Judge Christopher Klein dismissed an attempt by bondholder Franklin Templeton to suspend his October decision approving Stockton's debt-repayment plan. The plan calls for the city to pay CalPERS in full, keeping its pension plan intact, while paying Franklin Templeton just 12 cents on the dollar for a $36 million bond debt.

Earlier in the case, Klein ruled that Stockton had the legal right in bankruptcy to scale back its CalPERS payments, which run about $29 million a year. But by agreeing a few weeks later to the city's plan to continue making full payment to CalPERS, the judge was acknowledging that public pensions in California are for all practical purposes untouchable, according to several legal experts.

Franklin Templeton is appealing the October ruling to the 9th Circuit Bankruptcy Appellate Panel in Pasadena.

Stockton officials argued that keeping the city in bankruptcy during the appeal would have stymied the city's efforts recover from the effects of bankruptcy. "The impact of such a lengthy stay on the city's ability to resume its normal functioning would be dramatic and devastating," city lawyers wrote in court papers.

Despite the rulings in Stockton, the notion that public pensions are sacred in California is still under scrutiny. Two creditors in San Bernardino's bankruptcy have filed a lawsuit challenging the city's decision to pay its full CalPERS bill.

As for Stockton, Tuesday's ruling means the city's repayment plan is expected to go into effect in early February, said city spokeswoman Connie Cochran.

(c)2015 The Sacramento Bee (Sacramento, Calif.)