California’s bankrupt cities can’t seem to stay out of court. Late last year, Calpers, the state pension fund, sued San Bernardino over its attempt to postpone its pension payments so it could keep basic services running. Now it’s Stockton that is being sued, this time by its Wall Street creditors, who are complaining that the bankrupt city is prioritizing its payments to pensioners (via Calpers) over those due to them. If these creditors win, Stockton, which has already cut city services to the bone, may have to cut pensions as well.Calpers will not take this lying down. Mary Williams Walsh, who has been all over the pension story for the NYT, writes:
In 2011, Stockton paid a little more than $20 million to Calpers—about double what it paid to run its public libraries. Its payments are expected to nearly double in the next 10 years, making Calpers the city’s biggest creditor. Stockton says it has no choice but to keep paying, even as it pares other costs, including its payments to bondholders. It says that if it cuts the rate at which its workers build up their pensions, workers will leave—especially the police, who have been recruited with the promise of large, early pensions. Last year, Stockton asked Calpers for a “hardship exemption,” allowing it to slow down its contributions. Calpers said no, fearing that if Stockton fell behind, it might never catch up.“They’re scared to death,” Mr. Sweet said. “Calpers says, ‘You can’t give us a haircut, because if you do, the world is going to collapse. If it happens in Stockton, it’s going to happen in San Bernardino, and if it happens in San Bernardino it’s going to happen in Modesto, and if it happens in Modesto it’s going to happen in Bakersfield, and if it happens in Bakersfield it’s going to happen in Fresno.’ ”
In many ways, the Stockton case is a mirror image of San Bernardino’s plight. In San Bernardino, Calpers complained about the city’s other creditors getting preferential treatment; in Stockton, those other creditors are suing to ensure that Calpers doesn’t get the first crack at the city’s money.At this point it’s up to the courts to decide who will come out on top. But whoever wins, we have no doubt that the people who live in these cities will be left to clean up the mess.