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A new federal ruling brings California one step closer to an inevitable decision on whether broke cities can cut pensions as part of a municipal bankruptcy.

From the New York Times:

A federal bankruptcy judge ruled on Monday that the city of Stockton, Calif., was eligible for court protection from its creditors, clearing the way for a battle over whether public workers’ pensions can be cut when the city they work for goes bankrupt.

We’ve reported extensively on the idea of cutting existing pensions through bankruptcy, as it appears to be the only way to legally reduce the pension burdens pressuring San Diego and other cities. Pension reforms here and across the state primarily reduce benefits for future employees, doing little to ease current budget problems.

So far, no judge has ruled on whether it’s possible to reduce existing pension benefits in bankruptcy though one approved a negotiated plan for pension reductions in a Rhode Island town in 2011.

In the Stockton case, the city’s bondholders, who could see major cuts to their loan payments, are challenging the city’s plan not to touch pension benefits. The city and state pension giant CalPERS say pensions should be left alone.

The judge in the case signaled he’ll decide the issue once the city presents a formal plan to exit bankruptcy. From the Times:

“The day of reckoning will be the day of plan confirmation,” Judge (Christopher M.) Klein said near the end of a two-hour session in which he read his decision. “The city is going to have a difficult time confirming a plan over the objection of unfair discrimination.”

Liam Dillon is a news reporter for Voice of San Diego. He covers how regular people interact with local government. What should he write about next?

Please contact him directly at liam.dillon@voiceofsandiego.org or 619.550.5663.

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Liam Dillon

Liam Dillon was formerly a senior reporter and assistant editor for Voice of San Diego. He led VOSD’s investigations and wrote about how regular people...

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