By Dan Walters
Published: Tuesday, Mar. 26, 2013 – 12:00 am
Last Modified: Tuesday, Mar. 26, 2013 – 6:10 am
Ostensibly, the trial that opened Monday in a federal courtroom was about whether Stockton is eligible to file for bankruptcy.
But the real issue – what one attorney called “the 800-pound gorilla in the room” – is whether public employees’ pensions, long thought to be legally untouchable, could be reduced via bankruptcy.
Stockton doesn’t want to touch its pension liabilities under bankruptcy – a position vociferously supported by the California Public Employees’ Retirement System, the nation’s largest pension fund.
But the holders of hundreds of millions of dollars in city bonds, who are objecting to the city’s bankruptcy petition, claim that exempting pensions makes them take too big a hit and want Judge Christopher Klein to reject the petition. Rejection presumably would force the city to raise taxes, cut spending further or reduce its pension liabilities.
“This is much like a qualifying heat in a race,” Klein observed.
CalPERS dispatched a couple of lawyers to the trial, and one of them told Klein it was to guard against “misinformation.” But the judge denied him an opportunity to address the court.
Bondholder attorneys contend that the city’s pension obligation is its largest debt, but CalPERS adamantly insists that it’s not a debt at all and that payments should be exempt.
While CalPERS backs Stockton, it adamantly opposes San Bernardino’s bankruptcy petition because that city stopped making pension fund payments.
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