California Professional Firefighters

Federal Judge Approves Stockton Plan to Exit Bankruptcy, Protects Public Pensions

After two years of wrangling in court and a series of crippling rollbacks in vital services, Stockton citizens can finally see the light at the end of their long bankruptcy tunnel.

In a much-anticipated ruling, Federal Bankruptcy Judge Christopher Klein approved the Plan of Adjustment negotiated between Stockton and its creditors that will allow the city to exit bankruptcy. The city declared bankruptcy in 2012 in the wake of the Great Recession and under the burden of nearly $1 billion in bonded debt.

The plan approved by Judge Klein preserves the retirement promises made to current employees and retirees, whom the judge described as “Stockton’s largest creditor.” Firefighters and other city workers have seen their pay reduced by as much as 23 percent. The city has also severely rolled back pension benefits for new employees and eliminated retiree health care.

“Judge Klein’s decision makes it possible for Stockton to protect its citizens without stealing the retirement security of its employees,” said CPF President Lou Paulson. “Firefighters and other city workers have sacrificed much in this long process, and the decision allows the city to move forward and rebuild.”

Klein’s decision came on the heels of an October 1 opinion he issued which could have forced Stockton to pull out of CalPERS, threatening pensions not only for current workers but also for those already retired. Approval of the plan of adjustment dramatically diminishes the impact of that previous ruling,.

“Today’s decision means the October 1 anti-pension decision has no legal or binding precedent,” said Paulson. “Cities that had been eyeing bankruptcy as a way out of their pension obligations will take heed and find sensible alternatives that don’t gut pension promises.”

Earlier this month, Stockton officials pegged the total cost of the city’s bankruptcy proceedings at more than $41 million.

“The bankruptcy declaration in Stockton has been an expensive ordeal that has put our public safety services at grave risk.,” said Greg Biddle, president of Stockton Professional Firefighters Local 456. “The approval of Stockton’s plan of adjustment allows our city to move forward, without breaking the pension promises made to current employees and to retirees. We know there’s a long road to rebuilding our city, but the acceptance of the plan is a major step toward a fiscally sustainable future.”

Had the plan not been approved, Stockton would have had to go back to the drawing board, likely prompting a further exodus of police and firefighters from their already decimated departments.

A statement from CalPERS is available here.

Read additional analyses of the Stockton decision from the Sacramento Bee and Capital and Main.