On its first official day in bankruptcy, the city of Stockton now must grapple with the hard part of reorganizing its financial affairs — how to share the financial burden equitably among creditors while meeting its massive state pension obligations.
At the conclusion of a three-day trial, a judge on Monday formally granted the city Chapter 9 protection, over the objections of creditors who questioned whether it was fair for the city to fully meet its obligations to the state pension system while other debt holders go partly paid.
The issue — whether federal bankruptcy law trumps the California law that requires pension fund debts to be honored — could have huge implications across the state and the rest of the nation, experts say.
“The fear is that there is going to be a run on the bank,” said bankruptcy attorney Michael Sweet, who has been monitoring the Stockton trial. “Everyone is going to be cutting CalPERS” payments if Stockton is allowed to do it.
California’s $225 billion Public Employees Retirement System already is underfunded by $87 billion, which means there are more payments due to retirees than there is money in the system.
Stockton, California, was ruled eligible for bankruptcy protection under Chapter 9 of the U.S. bankruptcy code, a U.S. judged said on Monday, turning aside creditors’ arguments that the city was not truly insolvent when it sought protection last year and had improperly failed to seek concessions.
In a case that has been widely watched by the $3.7 trillion municipal bond market, U.S. Bankruptcy Judge Christopher Klein said Stockton had established during last week’s three-day trial that it had met requirements to be found eligible to proceed with its municipal bankruptcy case.
Officials in the city of nearly 300,000, the largest city so far to have filed for municipal bankruptcy, will now be allowed to start drafting a so-called plan of adjustment for the city’s debts.
The case is expected to pit municipal bondholders against the California Public Employee Retirement System, which manages pensions for Stockton and many other California governments.
California’s newly proposed gun laws would:
- Ban the possession of ammunition magazines that hold more than 10 rounds
- Prevent the future sale, purchase, manufacture, importation, or transfer of any firearms that can accept detachable magazines
- Close the "bullet button" loophole by banning tools that allow the quick changing of gun magazines
- Regulate ammunition sales like the state regulates gun sales. Ammunition dealers would need to be licensed and anyone buying from them would need to obtain a permit and complete a background check.
- Create a 5-cent tax on each bullet purchased, for the purpose of funding crime prevention
- Prevent felons and other adults barred from gun ownership from living in a house that contains any guns
- Prohibit the loaning or sale of a firearm between people who know each other personally
- Take steps to phase out legal possession of assault weapons that were purchased before California outlawed their sale
- Require all firearms owners to take an hours-long gun safety course every year, similar to what the state now requires for obtaining a concealed weapon permit
- Require gun owners to purchase insurance to cover damage they may inflict
- Require CalPERS and CalSTRS, two of the nation's largest pension funds, to divest from companies that make, sell, or market firearms or ammunition
California has already enacted some of the nation’s strictest gun control laws, partly due to its experience with a Sandy-Hook-style massacre: In 1989, a mentally unstable ex-con opened fire with an AK-47-style assault rifle on an elementary school playground in Stockton, killing five schoolchildren and wounding 28 others. The shooting contributed to the passage that year of California’s assault weapons ban.
California will pay about $3.7 billion for state employees’ pension in its next fiscal year, more than it now pays but less than the state set aside for retirement-related expenses in the prior fiscal year, the state’s pension fund said on Wednesday.
The California Public Employees’ Retirement System, best known as Calpers, is receiving $3.5 billion from the state government, down from $3.9 billion in the prior fiscal year.
The anticipated $213 million increase in the state’s contribution for the next fiscal year reflects a change in the pension fund’s economic assumptions and a decision by its board in March to lower the fund’s assumed rate of return to 7.5 percent from 7.75 percent.
As the assumed rate of return drops, state agencies and local government employers using Calpers must pay more to the fund to manage retirement benefits for their employees.