Dan Walters

By Dan Walters
Published: Thursday, May. 15, 2014 – 6:16 pm

From the onset of Stockton’s journey through bankruptcy, Judge Christopher Klein has implied, both through comments and rulings, that he sees it as a potential test of whether public employee pensions are debts that could be reduced.

The city didn’t seek pension modification in its bankruptcy petition, although some creditors and their insurers did, and the California Public Employees’ Pension System intervened, contending that pension liabilities are exempt from bankruptcy proceedings.

Eventually, the city worked out debt-reduction deals with all but one of its major creditors, Franklin Templeton Investments, which rejected a settlement it said would repay less than 1 percent of the $37 million it’s owed, and again raised the issue of pension debt.

That rejection prevented Stockton from presenting a signed-and-sealed plan to Klein, generating a trial this week and a comment from the judge indicating that the pension issue is still an unresolved issue.

“We have a festering sore here,” Klein said. “We’ve got to get in there and excise it and figure out what the story is. Maybe CalPERS is correct, maybe not.” He later summoned CalPERS officials to testify on the issue.

It was not the first time that Klein had indicated that pensions may not be, as CalPERS contends, shielded from “impairment.”

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