Stockton, CA becomes most populous U.S. city to file for bankruptcy, setting up pension fight

posted at 9:21 pm on April 1, 2013 by Mary Katharine Ham

So, here’s the deal. Stockton, CA ain’t got no money, and has filed for bankruptcy, like San Bernardino before it. Stockton has 300,000 residents and was recently named one of America’s most dangerous cities because it turns out that being mismanaged into blowing all its money and more on promises it can’t keep isn’t all that great for the one thing the city’s supposed to be doing—protecting its citizens.

As with all the rest of California, Stockton is in debt to the California retirement system fund (CalPERS), and has been for some time.

Stockton owes CalPERS as much as $900 million to cover its pension obligation, which is the city’s single-biggest liability. Stockton officials argued before Klein that, due to protections for pensions in the state constitution, it has to pay CalPERS the full amount.

That’s been the typical reasoning in such cases. Promised pension benefits are protected under both state and federal law.

During pre-bankruptcy mediation, Stockton’s creditors understandably bristled at the notion that they might get back 17 cents on the dollar while CalPERS got everything it was owed. Those creditors, after all, put up $165 million for Stockton to pay to CalPERS several years ago.

“Naturally, the bondholders and others who will be taking a big haircut in the debt adjustment process are saying that’s not fair — there’s a big class of creditors who are being given a free pass here,” says Flanders, a former associate justice of the Rhode Island Supreme Court.

“The issue is a very important one, not just in Stockton and not just in California, but across the country,” he says.

And, here’s where we run into an issue that will reverberate around the country. What wins out? Federal bankruptcy law, which ostensibly allows for the tearing up of contracts (even pension promises) or state and local laws, which protect pension promises? Get ready to hear a bunch of liberals read the 10th Amendment for the first time ever. It’s pensions that are sinking states and cities. A bunch of politicians took public employee union dues, funded their campaigns by promising new and better things to public employee unions, won those campaigns, and knew damn well there was no way to actually deliver on ever more extravagant promises, but went ahead and did it because it’d likely be someone else’s problem some day. ABC reports:

Attorneys for creditors argued that it was unfair for their clients to accept reduced payments while the pensions negotiated in flush times went untouched. They argued that employees who shared the wealth during good times should bow have to endure some of the pain with cuts to their pensions.

Legal observers expect the creditors to aggressively challenge the repayment plan presented by Stockton in the next phase of the process.

“That’s where it will be precedent-setting,” said Karol Denniston, a municipal restructuring expert who monitored the trial. “Does bankruptcy code apply to CalPERS or not? If bankruptcy code trumps state law, then that’s huge and it has huge implications in terms of what happens next for other municipalities across California.”

The state pension plan manages $255 billion in assets but was underfunded by $87 billion in 2011, the last time calculations were made.

I don’t pretend to understand what the correct answer is for Stockton and for the rest of the country. I sympathize with those promised certain benefits who may lose them, even if they are above and beyond what most of us will see. But elected officials have to learn they can’t always make promises they know they can’t keep with other people’s money and get away with it. If creditors come out on the short end, and are in danger of losing big in such settlements around the nation, maybe word will finally go out that cities with giant unfunded pensions and politicians willing to promise the sun and the moon are not good investments. If elected officials are substance abusers, creditors are often enabling them.

At any rate, get strapped in for a long recovery. The Stockton case will give us an idea of which method of therapy we’re in for. California comeback, baby!


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California…shocker.

bernzright777 on April 1, 2013 at 9:28 PM

May they all eat sand.

Here is the opposite, and a man with real gonads.

Schadenfreude on April 1, 2013 at 9:31 PM

Get ready to hear a bunch of liberals read the 10th Amendment for the first time ever

heh

don’t you know it…

cmsinaz on April 1, 2013 at 9:31 PM

Sorry, the opposite, with link.

Schadenfreude on April 1, 2013 at 9:31 PM

Speak for yourself, MK. I am already laboring (pun intended) under the assumption that I will have to work until I am physically incapable. I will not have a retirement, and I have the baby boomers to thank for that fact. Screw ‘em.

gryphon202 on April 1, 2013 at 9:33 PM

I “retired” from both Eastern Air Lines and Pan American World Airways. PBGC took over both pensions and for Eastern I get a tiny fraction of my “promised” pension and for Pan Am I get ZIP, NADA, NOTHING. No one bailed us out.

I have a real hard time sympathizing with public employees who demand 100% of their already exorbitant PUBLICLY PROVIDED pensions. In my view ALL non-military public employees are under-worked and way, way overpaid, and that includes police and fire; NO ONE in government should be paid more than the comparable position in the US military.

clippermiami on April 1, 2013 at 9:33 PM

they deserve that money
-lsm 24/7

can hear it now…

cmsinaz on April 1, 2013 at 9:34 PM

Drudge

FIRST MAJOR AMERICAN CITY GOES UNDER…

STOCKTON, CA RUNS OUT OF CASH…

California’s net worth at negative $127.2 billion…

Schadenfreude on April 1, 2013 at 9:36 PM

Can’t the feds just write them a check to make it all go away? After all, we are the United States.

a capella on April 1, 2013 at 9:38 PM

Seriously, who the heck thought buying these Stockton bonds was a good idea? I’m pretty sure the balance sheet looked like cr@p in 2007.

WashJeff on April 1, 2013 at 9:38 PM

Recovery???

Electrongod on April 1, 2013 at 9:38 PM

It cracks me up how progressive pundits have been lauding California lately.

rob verdi on April 1, 2013 at 9:39 PM

I sympathize with those promised certain benefits who may lose them, even if they are above and beyond what most of us will see. But elected officials have to learn they can’t always make promises they know they can’t keep with other people’s money and get away with it. If creditors come out on the short end, and are in danger of losing big in such settlements around the nation, maybe word will finally go out that cities with giant unfunded pensions and politicians willing to promise the sun and the moon are not good investments.

Yup – this is going to be BIG.

If the creditors get stuck – good luck with new bond rates. If, on the other hand, the pensioners get hit – that will be ugly in court and on the street as soon to be retirees realize there’s no there, there .

EA_MAN on April 1, 2013 at 9:39 PM

Seriously, who the heck thought buying these Stockton bonds was a good idea? I’m pretty sure the balance sheet looked like cr@p in 2007.

WashJeff on April 1, 2013 at 9:38 PM

Our entire federal government’s balance sheet is worthless. Stockton won’t be the last…

gryphon202 on April 1, 2013 at 9:39 PM

Speak for yourself, MK. I am already laboring (pun intended) under the assumption that I will have to work until I am physically incapable. I will not have a retirement, and I have the baby boomers to thank for that fact. Screw ‘em.

gryphon202 on April 1, 2013 at 9:33 PM

I’m assuming I’ll get nothing of what I’m contributing to Social Security, etc., and I don’t think anyone should be expecting the likes of what public employees have been wringing from the rest of us for decades. I should have stipulated it’s a small amount of sympathy for people who’ve made plans based on pensions they were lied to about. But, yes, you guys are right that many of us in the private sector have been dealing with these issues without bailouts for quite some time, while public employee unions have been milking us.

Mary Katharine Ham on April 1, 2013 at 9:40 PM

Hopefully this will burn the lenders enough so that the next city that wants to borrow a lot of money to pay a bill hears the word “no”.

BTW, who will really lose their money? The lenders, or the individuals who put their money in the lenders hands?

You get one guess.

BobMbx on April 1, 2013 at 9:41 PM

Can’t the feds just write them a check to make it all go away? After all, we are the United States.

a capella on April 1, 2013 at 9:38 PM

They cannot write a check! That’s just stupid. They will make 50 commemorative $100 Billion coins; one with each state on it.

WashJeff on April 1, 2013 at 9:42 PM

I’m assuming I’ll get nothing of what I’m contributing to Social Security, etc., and I don’t think anyone should be expecting the likes of what public employees have been wringing from the rest of us for decades. I should have stipulated it’s a small amount of sympathy for people who’ve made plans based on pensions they were lied to about. But, yes, you guys are right that many of us in the private sector have been dealing with these issues without bailouts for quite some time, while public employee unions have been milking us.

Mary Katharine Ham on April 1, 2013 at 9:40 PM

Each and every one of us is being squeezed like a turnip-for-blood regardless of where we work! That’s what pisses me off the most. Stockton is a microcosm of the coming collapse, and if you think that looks bad now, we all ought to be cringing at the very thought of what happens when the bottom drops out on The Hill.

gryphon202 on April 1, 2013 at 9:42 PM

Me thinks,they/them/and those had a,

spending problem!!

canopfor on April 1, 2013 at 9:43 PM

BTW, who will really lose their money? The lenders, or the individuals who put their money in the lenders hands?

You get one guess.

BobMbx on April 1, 2013 at 9:41 PM

Assume the worst. We are being lorded over at all levels of government by people that have no sense of morality, ethics, or traditional lender-lendee subsidiarity. And it’s not that they don’t know better.

gryphon202 on April 1, 2013 at 9:45 PM

this will show the deep and mendacious hypocrisy of the Left

they are always the first to bleat out something about shared sacrifice…ha, ha. But here, not so much. Those that get screwed will be the people who use the roads and other public services.

but the real fun will come when there is a monster last grab for scarce $$$$ between the poor, the teachers, the pensioners…add a boatload of crooked politicians to the mix…and you get Greece…or any 2nd or 3rd world county.

Imagine…not hard if you try

r keller on April 1, 2013 at 9:45 PM

Drove through that “All-American City” yesterday on I-5. What an abject disgrace. By far the worst stretch of I-5, bar none. Looks like a good place to get murdered, if that’s your thing. The CAFO residents look like they have the prime real estate, FWIW.

Christien on April 1, 2013 at 9:46 PM

I bet there’s more than one CA retiree who at this very moment is realizing that it doesn’t matter how good that retirement plan is, cuz when there ain’t no money, there ain’t no check.

My heart just bleeds for those folks. Not.

Let them eat cake.

BobMbx on April 1, 2013 at 9:46 PM

Yup – this is going to be BIG.

If the creditors get stuck – good luck with new bond rates. If, on the other hand, the pensioners get hit – that will be ugly in court and on the street as soon to be retirees realize there’s no there, there .

EA_MAN on April 1, 2013 at 9:39 PM

…which is why the end goal for California will be to have the other 49 states bail them out, because they’re too big to fail. Which in turn will set up a situation where other states in financially perilous positions, like New York and Illinois, will be all for it as well, in hopes of getting their share, and Democrats in Washington and those states, along with the big media, will be warning of the End of the World as We Know It if the big insolvent Blue states aren’t bailed out by the financially sound (mostly) Red ones.

jon1979 on April 1, 2013 at 9:46 PM

During pre-bankruptcy mediation, Stockton’s creditors understandably bristled at the notion that they might get back 17 cents on the dollar while CalPERS got everything it was owed.
================================================

Ya know,Stockton might of fared better,if there loot was in one of those
Cyprus banks!!
(sarc)

canopfor on April 1, 2013 at 9:47 PM

By the by, any of you who live in or around Stockton who are tired of being treated like infants by your municipal government, the insanity hasn’t infected my home state of South Dakota yet. Sioux Falls is quite a bit smaller than Stockton, but you could learn to love it up here. ;)

/ShamelessPlug

gryphon202 on April 1, 2013 at 9:48 PM

r keller on April 1, 2013 at 9:45 PM

Don’t forget the farmers. Without subsidy support, food production will stop. That’s when it really gets interesting.

a capella on April 1, 2013 at 9:48 PM

gryphon202 on April 1, 2013 at 9:48 PM

Do they bring their voting patterns along?

a capella on April 1, 2013 at 9:50 PM

You all understand that this case is going to be tried by a judge who is…

(ahmm)

a public employee union member, don’t you?


“Nice pension you got their your Honor…

… It would be a shame if anything happened to it.”

Seven Percent Solution on April 1, 2013 at 9:51 PM

gryphon202 on April 1, 2013 at 9:48 PM

Do they bring their voting patterns along?

a capella on April 1, 2013 at 9:50 PM

I hope the conservative Christian ones do. Honestly, at this point in time, liberals wouldn’t last very long up here. Lots and lots of wide-open spaces between the semi-urban cities full of century-old historical buildings.

gryphon202 on April 1, 2013 at 9:53 PM

She is yet a beautiful state, despite the ugliness of her people. That much I can still say about my birthplace.

Christien on April 1, 2013 at 9:55 PM

If bankruptcy code trumps state law, then that’s huge and it has huge implications in terms of what happens next for other municipalities across California.”

Paul looking at Peter’s bank accounts.

You all understand that this case is going to be tried by a judge who is…

… a public employee union member, don’t you?

Seven Percent Solution on April 1, 2013 at 9:51 PM

Bankruptcy is a federal court action, so there’s that saving grace. But you’re right..try to find a party in this that doesn’t have a conflict of interest.

BobMbx on April 1, 2013 at 9:56 PM

Speak for yourself, MK. I am already laboring (pun intended) under the assumption that I will have to work until I am physically incapable. I will not have a retirement, and I have the baby boomers to thank for that fact. Screw ‘em.

gryphon202 on April 1, 2013 at 9:33 PM

With all due respect, welcome to the party, pal.

I’m 50 years old, started over at 46 thanks to the end of the mortgage market, and probably have to work another 25 years just to get back to where I was. I’m the tail end of the boomer generation, and don’t expect to see any of the benefits I’ve paid into since I was 16. I also packed away as much money as I could since then. I’m not bragging, in fact, I’m worried that I may not have enough. It’s not all the boomers’ fault.

john1schn on April 1, 2013 at 9:56 PM

She is yet a beautiful state, despite the ugliness of her people. That much I can still say about my birthplace.

Christien on April 1, 2013 at 9:55 PM

My birthplace is not only a beautiful state, but a sane one. No place I’d rather be than right here right now.

gryphon202 on April 1, 2013 at 9:56 PM

The LIST/Map:

Bankrupt Cities, Municipalities List and Map

Many local governments across the U.S. face steep budget deficits as they struggle to pay off debts accumulated over a number of years. As a last resort, some have filed for bankruptcy.

Governing is tracking the issue, and will update this page as more municipalities seek bankruptcy protection.

Overall, bankrupt municipalities remain extremely rare. A Governing analysis estimated only one of every 1,668 eligible general-purpose local governments (0.06 percent) filed for bankruptcy protection over the past five years. Excluding filings later dismissed, only one of every 2,710 eligible localities filed since 2008.

The majority of Chapter 9 bankruptcy filings have been submitted by utility authorities and other narrowly-defined special districts. In Omaha, Neb., nine Sanitary and Improvement Districts filed for bankruptcy in recent years.

It’s also important to note that only about half of states outline laws authorizing municipal bankruptcy. View our bankruptcy laws map for each state’s policies.

List of Bankruptcy Filings Since January 2010

All Municipal Bankruptcy Filings: 31

City and Locality Bankruptcy Filings (7):
– City of San Bernardino, Calif.
– Town of Mammoth Lakes, Calf. (Dismissed)
– City of Stockton, Calif.
– Jefferson County, Ala.
– City of Harrisburg, Pa. (Dismissed)
– City of Central Falls, R.I.
– Boise County, Idaho (Dismissed)

Municipal Bankruptcies Map

The map below shows all municipalities filing for Chapter 9 bankruptcy protection since 2010, along with local governments voting to approve a bankruptcy filing.

Cities, towns and counties are shown in red. Utility authorities and other municipalities are displayed in gray. Click a marker to view details of each filing. Multiple municipalities have filed for bankruptcy in some cities, such as Omaha, Neb., so not all markers are visible without zooming in on the map.

Last updated Jan. 22, 2013.

In 2012, Stockton, Calif., became the largest U.S. city to file for bankruptcy. San Bernardino, Calif., was the most recent city to approve a bankruptcy filing after City Council members learned the city had only $150,000 left in its bank accounts.

States without laws authorizing municipal bankruptcies often allow for different measures providing financial relief. In Michigan, seven cities and school districts have emergency managers, and another three are under consent agreements. Gov. Rick Snyder most recently declared a financial emergency for the city of Allen Park. View our map and story about the state’s efforts to turn around the distressed municipalities.

http://www.governing.com/gov-data/municipal-cities-counties-bankruptcies-and-defaults.html

canopfor on April 1, 2013 at 9:57 PM

HERE is where the Real Violence starts – because THE UNIONS will not let this go Without a Fight!

……I want it to be a really, really, violent fight!!

The Time has come to Pay The Piper – and I want The Piper to play a Dance of Death!

With A LOT of Cresendos…….

williamg on April 1, 2013 at 9:58 PM

Not to worry…

… I live in Southern California, and although I am not or have ever been a public employee union member, I have my retirement covered!

Ammo and toilet paper cost a little bit more…

Seven Percent Solution on April 1, 2013 at 9:59 PM

With all due respect, welcome to the party, pal.

I’m 50 years old, started over at 46 thanks to the end of the mortgage market, and probably have to work another 25 years just to get back to where I was. I’m the tail end of the boomer generation, and don’t expect to see any of the benefits I’ve paid into since I was 16. I also packed away as much money as I could since then. I’m not bragging, in fact, I’m worried that I may not have enough. It’s not all the boomers’ fault.

john1schn on April 1, 2013 at 9:56 PM

My parents are good people. They were also born in 1950 and 1952, respectively — they are baby boomers. I guess it’s just frustrating to know that, despite the desperate straits we’re in right now, this didn’t start with Barack Obama. And the phenomenon of liberal Republicans didn’t start with George W. Bush.

All that is required for the triumph of evil is for good people to do nothing.

gryphon202 on April 1, 2013 at 9:59 PM

Don’t be scared homies.

can_con on April 1, 2013 at 10:00 PM

Ooooh Krugman, missed it by THAT MUCH!

Published March 31st 2013

http://www.nytimes.com/2013/04/01/opinion/krugman-lessons-from-a-comeback.html?partner=rssnyt&emc=rss&_r=0

Excerpt:

“And that’s where things get really interesting — because the era of hamstrung government seems to be coming to an end. Over the years, California’s Republicans moved right as the state moved left, yet retained political relevance thanks to their blocking power. But at this point the state’s G.O.P. has fallen below critical mass, losing even its power to obstruct — and this has left Mr. Brown free to push an agenda of tax hikes and infrastructure spending that sounds remarkably like the kind of thing California used to do before the rise of the radical right.”

can_con on April 1, 2013 at 10:05 PM

Cali has become a giant New York City but without that beautiful accent, an entire state of babies looking to the government for their needs.

You dug your own hole, Californatonians, now enjoy as it collapses over you.

Bishop on April 1, 2013 at 10:06 PM

You dug your own hole, Californatonians, now enjoy as it collapses over you.

Bishop on April 1, 2013 at 10:06 PM

You don’t think it’s going to stop at California’s borders, do you Bish?

gryphon202 on April 1, 2013 at 10:08 PM

“Let The SHOOSTING Begin!!”

williamg on April 1, 2013 at 10:09 PM

The irony in all of this is that California is sitting on Trillions of dollars in royalty payments from the abundance of oil, natural gas, minerals, and farm land that the Liberals have shut off to exploration, development, and water…

… Now the rubber is hitting the road.

What to do…? What to do…?

Seven Percent Solution on April 1, 2013 at 10:10 PM

Stockton officials argued before Klein that, due to protections for pensions in the state constitution, it has to pay CalPERS the full amount.

Time for an amendment to the California Constitution, perhaps?

Oh my! The Unions are not going to like this.

wren on April 1, 2013 at 10:15 PM

…but what about the train?

KOOLAID2 on April 1, 2013 at 10:15 PM

…which is why the end goal for California will be to have the other 49 states bail them out, because they’re too big to fail.

If that ever happens then California should lose it status as a state and return to being a territory with statehood granted only if it’s financial house is back in order.

Probably break into three or four states at that.

PackerBronco on April 1, 2013 at 10:31 PM

It begins.

How much longer till all of America becomes Greece?

How much longer until our banks are arbitrarily shut-down, like Cyprus?

listens2glenn on April 1, 2013 at 10:33 PM

So, Stockton is broke. Tell all those CALPERS recipients they can retire on the equivalent of what the folks get on SSI, or eat sand.

stuartm80127 on April 1, 2013 at 10:41 PM

Cali has become a giant New York City but without that beautiful accent, an entire state of babies looking to the government for their needs.

You dug your own hole, Californatonians, now enjoy as it collapses over you.

Bishop on April 1, 2013 at 10:06 PM

Here’s the most embarrassing thing about this for California — they don’t even have the system of controls in place New York State’s had for 35 years. NYS was forced to create a financial control board in the wake of New York City’s near-bankruptcy in 1975-77, which is basically a state panel with the authority to cut up cities’ credit cards and dictate spending until it gets it’s financial house in order.

Buffalo and Yonkers have been forced to submit to the Financial Control Board when they teetered on bankruptcy, and the board allows weak local politicians to basically avoid blame and point the finger at the board when the cuts come down on municipal workers. California’s such a fustercluck they can’t even do that, and as a result allow the unions to try and get a judge to keep giving them their money while shutting out creditors.

jon1979 on April 1, 2013 at 10:43 PM

Stockton officials argued before Klein that, due to protections for pensions in the state constitution, it has to pay CalPERS the full amount.

Time for an amendment to the California Constitution, perhaps?

wren on April 1, 2013 at 10:15 PM

Some judge will just say that you can’t change it because it takes away a right that people used to have, it will go to SCOTUS, and SCOTUS punts.

malclave on April 1, 2013 at 10:43 PM

But Keynesian economics works! We blame George W. Bush.

Red States, who run financially sound policies, give us our bailout.

rightside on April 1, 2013 at 10:47 PM

Some judge will just say that you can’t change it because it takes away a right that people used to have, it will go to SCOTUS, and SCOTUS punts.

malclave on April 1, 2013 at 10:43 PM

True. Judges may try to prevent changing the California Constitution.

But the reality is, cities in California (and probably the state, too) are going to find it is awfully hard to convince people to lend them money, as long as the California Constitution protects notoriously bloated pension obligations for public employees.

wren on April 1, 2013 at 10:51 PM

“California is awesome.”

- Bayam

sentinelrules on April 1, 2013 at 10:56 PM

cities in California (and probably the state, too) are going to find it is awfully hard to convince people to lend them money

wren on April 1, 2013 at 10:51 PM

True. I figure that, eventually, one of tow things will happen.

Either Sacramento starts acting responsibly and opens up oil exploration etc., or the federal government will bail out Califonia because California is too big to fail is an ATM machine for politician’s campaign war chests.

malclave on April 1, 2013 at 11:01 PM

Just like Barry, Kalifornia pols are particular in the economic pain they want to inflict.

If Stockton gets a pass, a whole lot of cities are suddenly going to find that the bonds they want people to purchase, have suddenly become worthless.

So they’ll raise taxes………..again.

That might be a good thing. The “low info” voter will finally get the shaft they deserve.

GarandFan on April 1, 2013 at 11:02 PM

I sympathize with those promised certain benefits who may lose them

Why sympathize with them? They bribed and extorted to get them.

VorDaj on April 1, 2013 at 11:13 PM

it’s pretty simple – State judges will declare CalPERS untouchable and tell creditors to eat sand. The creditors will try to fight it but the left wing propaganda machine will eat them alive. They will lose.

Then, we have a new precedent set. City politicians can promise the moon & stars to the public employee unions to get their backing knowing full well they will never have to answer for their crimes.

Here’s the solution to all those $h!t-for-brains creditors – STOP LENDING MONEY TO DEAD-BEATS!!

powerpickle on April 1, 2013 at 11:16 PM

I sympathize with those promised certain benefits who may lose them, even if they are above and beyond what most of us will see.

I don’t think most public employees get phenomenal retirement packages, but for ideological reasons we on the Conservative side are going to focus on obviously over-compensated public sector employees. To me having some modicum of job security and lower than market wages being offset by better than average retirement would be fair…or vice versa. If they want to make more, then they need to take their chances with the free market like most do.

Unfortunately, pension funds are prime targets of organized crime (mafia, organized labor, politicians of both parties). They will be pilfered by the politicians and bureaucrats whenever they can get their hands on that money. Right now in Florida, for example, it’s the Republicans trying to get their claws into the FRS pension fund.

It’s all a Ponzi scheme now, even though these things didn’t necessarily start out that way.

Dr. ZhivBlago on April 1, 2013 at 11:20 PM

…spending is not the problem!

KOOLAID2 on April 1, 2013 at 11:26 PM

Forget it Jake, this is Chinatown.

After the bond holders got screwed in the Chrysler and GM bankruptcies so Obama’s BFFs the UAW wouldn’t have to take a hair cut, you think municipal bond holders will be treated any differently? If anything, because the public employee unions have even more juice with the Democrats, that’s a forgone conclusion.

rokemronnie on April 1, 2013 at 11:28 PM

I do believe this is going to come back to haunt them. From what I’ve read, they’re effectively shafting the bond holders in favor of the pensioners, trying to salvage their financing in this manner. That may be all well and good, as a temporary solution, but they will eventually need to put out some more bonds and who’s going to buy them? Municipal bonds used to be one of the soundest investments you could make, not a big money maker, but reliable and not risky. Now, people are going to be reluctant to buy these bonds unless the interest rates are high and there’s a guarantee associated with them.

It’s going to be interesting to watch, especially since this appears to be the beginning, not the end of this problem. California is a financial disaster waiting to happen and, when it does, it’s going to be quick and lethal.

bflat879 on April 1, 2013 at 11:29 PM

gryphon202 on April 1, 2013 at 9:59 PM

Conservatives, come to Texas. Liberals, your worker’s paradise of California awaits you.

gryphon, if you’re not here already, welcome to Texas, a spot will be ready for you when you get here.

john1schn on April 1, 2013 at 11:40 PM

CA cities better hope that the judges says CALPers is equal to other creditors; can you imagine the borrowing cost if they are a superior?

Tater Salad on April 1, 2013 at 11:44 PM

If California, or any other state, gets bailed out by solvent states, California should lose its self-governing status and become a ward of the state(s) that bailed it out. When it gets its financial house back in order, it can petition for renewed self-governing status at that point. If it ever requires another bailout, it should be stripped of statehood and run as a territory of the state(s) that bailed it out again.

We do not want it to simply be absorbed by the other states, as the citizenry that voted California into bankruptcy would tend to do that to the host state. No one else should be made to suffer California’s madness.

digitalhap on April 2, 2013 at 12:11 AM

I “retired” from both Eastern Air Lines and Pan American World Airways. PBGC took over both pensions and for Eastern I get a tiny fraction of my “promised” pension and for Pan Am I get ZIP, NADA, NOTHING. No one bailed us out.

I have a real hard time sympathizing with public employees who demand 100% of their already exorbitant PUBLICLY PROVIDED pensions. In my view ALL non-military public employees are under-worked and way, way overpaid, and that includes police and fire; NO ONE in government should be paid more than the comparable position in the US military.

clippermiami on April 1, 2013 at 9:33 PM

Have to agree with you about the police and fire part; many of those folks are paid healthy annual salaries (with bennies) for basically sitting around waiting for something to happen. It could be argued that many military folks are in the same boat, but many of them are a long way from home, and they also are training on a regular basis, not just taking recert courses several times a year.
And it could also be argued that unlike the public safety folks, the military folks in many more cases literally have to take their families to work with them, as the family has to wander around.

BTW, greetings from New Hampshire, where the wreckage of Pan Am ended up at. Their final plane (a small twin engine commuter job) was last seen at the Concord NH airport a few months ago, where they have (or maybe had?) a skeleton office in one of the hangars at the municipal airport. Before that they were based at and flying out of Portsmouth NH (the old Pease AFB).

Supposedly there is now a more recent knockoff Pan Am that flies out of South Texas?

Del Dolemonte on April 2, 2013 at 12:18 AM

I’ve found a solution that can save both bankrupt towns-how about a high speed railroad between Stockton and San Bernadino!! Think of all the jobs it can create. Both towns saved by my ingenuity!

Expect 3000% cost overruns you say? No passengers between the two towns except snakes and spiders? A $ trillion dollar boondoggle that will break California.s back? Never! That’s why 49 other states were created.

MaiDee on April 2, 2013 at 12:21 AM

Contract with the unions? I would call it grand theft.
There is no reason for anyone to get lifetime health insurance if they worked
for the city for one month….. But there are some that are getting just that.

If the Bondholders get screwed like Obama screwed the GM bondholders then that would
be the end of cities being able to raise money for anything. It will be pay as you go.
The northeast will not survive. Or California and Illinois for that matter.

redguy on April 2, 2013 at 12:30 AM

Right now in Florida, for example, it’s the Republicans trying to get their claws into the FRS pension fund.

That’s what Christy Whitman did in New Jersey. Police and fire paid 9.5 (now 10) percent into the fund, which was matched by the state. Fifteen years ago it was funded at 104% of future obligations. So the state stopped paying into it and used the difference to balance the budget. And they still haven’t begun making full payments. So now it’s funded at 80-some percent.

photom on April 2, 2013 at 1:28 AM

And with the state crashing around them, what do they do? Worry about a dog killing a seal.

Mark Kelly’s daughter could do a year of hard time!

Only in California

PattyJ on April 2, 2013 at 1:33 AM

If I’m not mistaken, Marshall v. Marshall established that federal bankruptcy laws supersede state laws.

In that case the federal bankruptcy court in California set aside the state ruling in Texas, and found for the petitioner.

The questions that were at issue in Marshall v. Marshall were not the same as those at issue now, but they are close enough to have some bearing.

1. What is the scope of the probate exception to federal jurisdiction?

2. Did Congress intend the probate exception to apply where a federal court is not asked to probate a will, administer an estate, or otherwise assume control of property in the custody of a state probate court?

3. Did Congress intend the probate exception to apply to cases arising under the Constitution, laws, or treaties of the United States (28 U.S.C. § 1331), including the Bankruptcy Code (28 U.S.C. § 1334), or is it limited to cases in which jurisdiction is
based on diversity of citizenship?

4. Did Congress intend the probate exception to apply to cases arising out of trusts, or is it limited to cases involving wills?

jaime on April 2, 2013 at 2:00 AM

Do remember that going bankrupt while remaining an incorporated entity is the ‘nice’ way to go.

The other way is to dissolve the incorporated city of Stockton, dissolve it out totally as an entity, and then allow the people to decide if they want to re-incorporate as a separate, new entity. Perhaps a town or village… or as two or three separate towns or villages… in this case those who have claims against it can try to figure out what to do when the entity they had relations with no longer exists.

For it is the right of the people to change or abolish government when it no longer suits their needs. And just going bankrupt is a very nice way of the people of Stockton to address their problems. That abolishing part is still available and I bet at some point there will be incorporated public entities that determine that the best way to address the needs of their people is to no longer be an incorporated entity.

ajacksonian on April 2, 2013 at 6:32 AM

I don’t pretend to understand what the correct answer is for Stockton and for the rest of the country.

Well I do. Raise retirement ages…now. 67 for full benefits, 62 for reduced, just like the real world.

Any more Big Issues you need solved? It’s not rocket surgery and I do work cheap.

MNHawk on April 2, 2013 at 6:55 AM

And with the state crashing around them, what do they do? Worry about a dog killing a seal.

Mark Kelly’s daughter could do a year of hard time!

well she shouldn’t have owned the canine version of an assault weapon. I’ve got no sympathy for anyone in that family.

bannor on April 2, 2013 at 7:03 AM

I enjoy watching these cities go belly up but I am worried about one thing. People have been fleeing cities for years due to democrat mismanagement. And as the tax base shrinks the whole thing snow balls. At some point these cities are going to try and unincorporate. And not because it allows them to tear up those union contracts and pensions. Those democrat politicians are as dependent on the unions as most people are to air. Nope they’re going to unincorporate for the express purpose of sticking it to a county wide tax base.

bannor on April 2, 2013 at 7:10 AM

And not because it allows them to tear up those union contracts and pensions. Those democrat politicians are as dependent on the unions as most people are to air. Nope they’re going to unincorporate for the express purpose of sticking it to a county wide tax base.

bannor on April 2, 2013 at 7:10 AM

You mean like when Memphis tried to get out of the education business? They voted to disband. The county would have been forced to deal with and foot the bill for some of the worst schools in the nation.

Happy Nomad on April 2, 2013 at 7:39 AM

Raise retirement ages…now. 67 for full benefits, 62 for reduced, just like the real world.

Any more Big Issues you need solved? It’s not rocket surgery and I do work cheap.

MNHawk on April 2, 2013 at 6:55 AM

Sorry to rain on your parade but the solutions are clear. It is the poltical fortitude that is lacking. Particularly when you have to tell one of the parasites that support the rat-eared devil that they too might have to give something up in the name of doing the right thing by this nation. The parasites are greedy selfish bastards.

Happy Nomad on April 2, 2013 at 7:42 AM

The Constitution seems quite clear on this matter…Article I Section 8:

Congress shall have power…To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;”

Feds win…

oddball on April 2, 2013 at 7:45 AM

Every major city is headed for bankruptcy.

wildcat72 on April 2, 2013 at 7:50 AM

If California, or any other state, gets bailed out by solvent states, California should lose its self-governing status and become a ward of the state(s) that bailed it out. When it gets its financial house back in order, it can petition for renewed self-governing status at that point. If it ever requires another bailout, it should be stripped of statehood and run as a territory of the state(s) that bailed it out again.

We do not want it to simply be absorbed by the other states, as the citizenry that voted California into bankruptcy would tend to do that to the host state. No one else should be made to suffer California’s madness.

digitalhap on April 2, 2013 at 12:11 AM

Any state that gets bailed out should at the minimum lose their statehood status until the taxpayers of the solvent states are paid back. That means no Senators, no Congressmen, and no Electoral Votes.

wildcat72 on April 2, 2013 at 7:53 AM

The Constitution seems quite clear on this matter…Article I Section 8:

Congress shall have power…To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;”

Feds win…

oddball on April 2, 2013 at 7:45 AM

The funny thing about this is you are going to hear Union Thugs and Leftists make 10th Amendment arguments for the first times in their lives.

wildcat72 on April 2, 2013 at 7:54 AM

Promised pension benefits are protected under both state and federal law.

I specifically contacted my state senators in an effort to get them to vote down the teacher’s state pension from being guaranteed by the taxpayers. Why should my pension be more protected than someone else’s?

Don’t forget the farmers. Without subsidy support, food production will stop. That’s when it really gets interesting.
a capella on April 1, 2013 at 9:48 PM

Um, no. That will not happen. A lot of farmers will go out of business. But the good ones won’t. And don’t forget there are people, like we ranchers, out there that do not take govt subsidies to produce food.
I also think you’d find most food products will go down in price. Some may rise, but most probably won’t.

She is yet a beautiful state, despite the ugliness of her people. That much I can still say about my birthplace.
Christien on April 1, 2013 at 9:55 PM

My father was born there & I lived much of my life in Carmichael & spent a lot of time with family in SoCal. I LOVE California. It is such a varied state. And it has been ruined even though much of it is a veritable natural paradise. So sad.

My birthplace is not only a beautiful state, but a sane one. No place I’d rather be than right here right now.
gryphon202 on April 1, 2013 at 9:56 PM

SD’s got it’s share of problems just like we do in ND. I go through Sioux Falls every year when I drive back to the mid-west to visit family.I have friends that live near there. I think your town’s wayyyyy to big. ;)
Of course, I live near towns that are maybe 350-800 people.

Why sympathize with them? They bribed and extorted to get them.
VorDaj on April 1, 2013 at 11:13 PM

They’re not all a bunch of greedy a-holes. See my comment above about my state pension. I’m not counting on it. I DON’T think it’s fair for the taxpayers to have to pick up the tab if the pension funds don’t perform in the market well.

Well I do. Raise retirement ages…now. 67 for full benefits, 62 for reduced, just like the real world.
Any more Big Issues you need solved? It’s not rocket surgery and I do work cheap.
MNHawk on April 2, 2013 at 6:55 AM

I think our teacher pension here in ND is like that. You can retire early. I’m on the old rule of 85 (your age + years of teaching). But youre pension is greatly reduced if you don’t hold out till 67.

Badger40 on April 2, 2013 at 8:13 AM

They’re not all a bunch of greedy a-holes.

I am so SICK of the stupid, irrelevant, short-sightedness of this argument I could sream!

The appropriate responnse is “SO WHAT?!!”

Not “ALL” Nazis were “evil a-holes” – does that mean that Hitler and Goebbels and the rest should have GOTTEN OFF?

No.

Does that mean that we should NOT have proceeded as though ALL Nazi’s were criminals? NO - see Eli Weisenthal about that.

STUPID – STOP SAYING THIS!!

williamg on April 2, 2013 at 9:09 AM

The state pension plan manages $255 billion in assets but was underfunded by $87 billion in 2011, the last time calculations were made.

No the latest estimates put it closer to $200 billion deficit and $500 billion for the whole state.

http://articles.latimes.com/2010/apr/06/opinion/la-oe-crane6-2010apr06

JeffinSac on April 2, 2013 at 9:20 AM

California is a financial disaster waiting to happen and, when it does, it’s going to be quick and lethal.

bflat879 on April 1, 2013 at 11:29 PM

As Mike Campbell replied to Bill Gorton when asked how he went bankrupt in The Sun Also Rises: “Gradually, and then suddenly.”

Barnestormer on April 2, 2013 at 9:54 AM

Easy solution, haircuts all around. It happens every day in private companies, there’s no way California should be immune to reality.

slickwillie2001 on April 2, 2013 at 10:08 AM

Hey, Here in Colorado, teachers who join union can work for twenty years, contribute to PERA, get decent pay increases regardless of merit too boot, and retire with annual retirement benefits of 68 percent of their highest salary, get medical benefits… Not to mention the work for eight months/year part. Then the rest of us here in the real world who have to rely on contributing to our own 401K/IRA which will have to fund most of our own retirement and I guess that of the PERA recipients too. I have heard Cali with CALPERS is even more generous. Sad, the books haven’t been examined since 2011 so the next audit will be like the infamous opening of Al Capone’s vault – nothing there! So while it sucks to lose your promised benefits that you no doubt worked hard for, think of most of us in the real world who probably won’t even have SSI benefits by the time we retire or whose 401K/IRA will likely be taxed more on actual withdrawal to pay for increased medical costs and who knows what else politicians can imagine.

stuartm80127 on April 2, 2013 at 12:21 PM

Any state that gets bailed out should at the minimum lose their statehood status until the taxpayers of the solvent states are paid back. That means no Senators, no Congressmen, and no Electoral Votes.

wildcat72 on April 2, 2013 at 7:53 AM

Interesting idea, but no.

Other states or entities should offer to BUY OUT California… not bail out. I wouldn’t trust any promises of repayment from this financially challenged stronghold of intellectual stupidity.

Perhaps California could save its skin by using the (perverted and disgusting) Kelo ruling… that seizing property from all those Hollywood types to sell out-of-state is in the best interest to save California.

I would relish that perversion just to watch libs scream!

dominigan on April 2, 2013 at 12:55 PM

Calpers has many different retirement plans based on what job category or union you are. It’s the “connected” unions that get the egregious pensions.

The real problem is that leftists now control the board and make investment decisions like selling off profitable gun stocks and buying loser green stocks. (And bribes for themselves; two were recently indicted for fraud.)

And now they are going to fund $800 billion in infrastructure loans! You know what that means…Solyndra, union no-work jobs, bankruptcy.

PattyJ on April 2, 2013 at 1:24 PM

Why has no one thought of suing the slimy politicians who caused this for malpractice? Personally, not to be represented by their citiies. If a doctor practiced such gross malfeasance he would get sued in a heartbeat, and his license to practice would be revoked. These dirty, slimy politicians need to suffer the consequences of their criminal activity.

NOMOBO on April 2, 2013 at 1:49 PM

“How am I supposed to survive on just 60% of my salary for the rest of my life instead of the 80% I was promised?!?” – Public Employee

“What’s a pension? Is it like my savings and 401k?” – Everyone in the real world

nextgen_repub on April 2, 2013 at 2:26 PM

Not an expert in any way, but I have heard it said that in a bankruptcy (a failed enterprise) what counts is not the sanctity of contracts but their priority. Secured creditors, which might include Calpers, get the first dig at the assets and the unsecured creditors can then get theirs, and if anything is left it goes to the stockholders or perhaps in this case to the city.

The imbalance is the proposal that Calpers gets the lion’s share of the available assets while the other creditors do with much less.

A bankruptcy is to divide up the available assets among the creditors, starting with secured creditors, then going to unsecured creditors, then everyone else. What makes how the system operates so strange is that the bankruptcy system gets turned on its head by manipulation that changes the priorities.

So if secured and unsecured creditors aren’t, you destroy credit because now the risks goes way up.

Russ808 on April 2, 2013 at 9:42 PM