Dan Walters

Dan Walters

By Dan Walters
Published: Wednesday, Dec. 4, 2013 – 12:00 am

A legal showdown over pension obligations in municipal bankruptcies was averted in both Vallejo and Stockton, largely because officials in both chose not to make that fight.

No small factor was a rather heavy-handed threat by the California Public Employees’ Retirement System to wage high-octane legal war should either city seek to “impair” pension obligations.

The bankruptcy judge in Stockton’s case implied that he was receptive to including pension obligations as a debt to be reduced under federal bankruptcy law despite their seemingly impregnable standing in the state constitution. And insurers of the city’s bonds took a stab at including them.

However, the issue was sidestepped when most of the bondholders and their insurers cut a deal with the city that excluded pensions.

San Bernardino is a different story. It stopped making payments to CalPERS for a while, still owes $15 million in past-due payments, and indicated in its bankruptcy filing that it wants pension debts on the table. And the huge retirement fund did what it threatened to do in Stockton and Vallejo – wage legal war.

CalPERS tried, unsuccessfully, to persuade the judge hearing San Bernardino’s petition to block bankruptcy, but whether the case eventually hinges on pension obligations remains to be seen.

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