Flood of City Bankruptcies Coming

In a welcome, common sense ruling, Court lets Stockton, Calif. cut retiree health care

A federal bankruptcy judge on Friday cleared the way for Stockton, California to cut health care benefits for retirees while it is in bankruptcy proceedings.

Stockton is seeking Chapter 9 protection from its creditors and said that it would cut retiree health benefits while it reorganizes. Retired employees sued to stop those cuts.

Judge Christopher Klein on Friday issued a temporary order denying the bid to stop the benefit cuts, and he said a formal decision was on its way.

Stockton’s attorneys had argued that bankruptcy law gave the city wide latitude on how to spend its revenue while it prepares a plan to restructure its finances.

“For the reasons explained in the forthcoming decision of this court, the Application for Temporary Restraining Order and Preliminary Injunction or in the Alternative for Relief from Stay is DENIED,” Klein wrote.

Flood of City Bankruptcies Coming

This is a good start for what needs to happen. The next step needs to be huge clawbacks on promised benefits, preferably top down, so that those with the highest pension benefits bear the brunt of the hit.

As soon as cities realize this is the way out, a flood of bankruptcies will be on the way.

About the author: Mike “Mish” Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management. His top-rated global economics blog Mish’s Global Economic Trend Analysis offers insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education. Every Thursday he does a podcast on HoweStreet and on an ad hoc basis he contributes to many other websites, including UnionWatch.

4 replies
  1. Avatar
    Tough Love says:

    It’s time for a City in bankruptcy to cut pensions by 50+% (to what the workers might have received in the absence of the Union-politician collusion …. via trading campaign contributions and election support for favorable votes on pay, pension, and benefits).

    CalPERS threatens to bury cities who pursue such reductions in a mountain of litigation. Why, isn’t CalPERS mandate to correctly “administer” the Plans as written and act as a fiduciary with respect to Plan assets.

    Where and when did advocating for Plan member interests (often against those of Taxpayers … who pay the bills) become part of that mandate ?

    A city in bankruptcy should look for a Federal Bankruptcy Court ruling that CalPERS has no standing and cannot interfere with a bankrupt city’s attempt to reduce pensions … as such a decision is clearly an option that should be left up to the bankruptcy judge.

  2. Avatar
    marincountyman says:

    The absolute power these unions have over all of us is frightening…for me, its simply stunning that these pirates have gamed this system so well, that even with bright flashlights of truth and excesses, they don’t blink, let alone run. They believe this is their right…they are worth it…and with a straight face tell taxpayers “good luck trying to change the rules…we made em.” This Counties, cities, many States and perhaps our Country, have been hijacked by these government employees who, sadly, supposedly work(ed) for us. They don’t…our Legislators, City Councils and Governor (and President), work for them…..and the credit card bills they have racked up is the undeniable evidence. Today, tragically, they are right. God help us and we owe an apology to our children for letting this fiscal abuse of the next generation by 4% (public employee unions) of the US population occur.

  3. Avatar
    eatingdogfood says:

    Reduce Pensions by 50 % and increase contributions to Health Care. Claw Back Baby; its the only solution in Bankruptcy !!!

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