You have to wonder if this motion, filed today by National Public Finance Guarantee Corp., which is an insurer of the city of Stockton's bonds, will be a game changer in California municipal bankruptcy. National Public is asking the court to throw Stockton out of bankruptcy because the city never bothered to negotiate pension reductions with CalPERS and city employees. As a result, 44 percent of the concessions Stockton seeks in order to get back to financial health would come by cutting interest payments on its debt. That's unfair, claims National Public.
CalPERS, the giant California pension system, has promised to tie up in court any city that tries to cut pension benefits to workers while in bankruptcy. That was one reason why Vallejo left pension benefits untouched in its plan to exit Chapter 9, and why Stockton sought other concessions from city workers, but has done nothing on pensions.
"The city admits that its liability to CalPERS has greatly contributed to the city's cash and budget crisis," National Public said. "The city never asked for a single dollar in reductions."National Public bases its motion on the fact that Stockton in its own documents blamed pensions in part for its fiscal mess. In a special audited report before the city filed for Chapter 9 protection, Stockton said," most of the $34 million [budget] gap, approximately $27 million, is derived from uncontrolled pension, health, and other benefit cost increases." The city also noted that because of CalPERS investment losses, Stockton's required annual contribution to pensions was likely to increase sharply over the next five years, and that was before CalPERS clocked in with its worst investment performance in years.