NEW: Stockton leads tsunami of Calif. bankruptcies
By Troy Anderson
August 27, 2012
During Vallejo’s bankruptcy, which began in 2008, the city cut the number of police in half rather than deal with the “pension problem.”
Now, a somewhat similar scenario is playing out in Stockton, a city of 292,000 east of San Francisco that recently displaced Vallejo as the nation’s largest city to declare bankruptcy.
Rather than trim generous pension benefits, the city is proposing to fully fund its pension system while defaulting on $124 million in pension bonds floated in 2007.
Assured Guaranty Ltd., a Bermuda-based bond insurance company, says Chapter 9 bankruptcy is not intended to be used as a “sword to prefer one class of similarly situated creditor over another.” In a prepared statement, the company described Stockton’s attempt to default on the bonds as “unprecedented, a contortion of the bankruptcy process and will foreclose Stockton’s access to the capital markets for the foreseeable future.”
As a growing number of cities in California are contemplating or filing bankruptcy, some pension experts say they are disappointed that the cities are choosing to default on their debts and cut public services instead of dealing with the exploding costs of public pensions.
“They won’t touch pensions,” says Joe Nation, a professor of the practice of public policy at Stanford University. “In the case of Vallejo, they literally reduced the number of police officers by about one-half. It’s horrible. They don’t want to even take modest steps to deal with the pension problem.”