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Calpers, Wall Street Fight over Scraps in Bankrupt California Cities

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.

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  • Federale

    The major problem with Stockton’s arguement is that recruiting new police officers is quite easy in California. There are plenty of young men who want to be police officers and meet the physical, mental and moral qualifications. The issue is that the State has made the training of police officers more expensive with the Police Officer Standards and Training (POST) requirements beyond any level connected to police officer performance. Usually for any recruiting effort the number of applications for each open position is thousands to one. Police officer unions have lobbied for higher training standards to help restrict the number of officers who graduate academies and encourage washouts in field training programs. It makes them harder to replace and their demands for ever growing retirement benefits hard to resist.
    It would be cheaper for Stockton to lower wages and benefits and accept the cost of hiring more officers.
    In any event, each year the community colleges of California graduate hundreds of mostly young men who put themselves through a community college based POST certified acadmeny at their own cost and without a job offer. Many are not hired because they are white males. Most departements open discriminate based on race and sex against white males. White males who would work for lower wages just the entry level opportunity in a lesser prestige and lower paid small department like Stockton PD.
    In any event, most job jumping by police officers in California is limited to various local areas. Few jump from departments to another very far away.
    In the San Francisco Bay area, most of what are called lateral hires, from one currently serving police officer with a POST certificate in one agency to another, are from larger departments to smaller ones in more affluent suburbs. Small affluent suburbs like Los Altos cherry pick officers from Oakland, San Francisco, and San Jose. Officers gain by less demanding work and in a more pleasant city. Cities gain highly trained and experienced officers. In the Stockton area, few officers would leave, as other local departments suffer many of the same problems of Stockton, collapse in housing prices, high unemployment, etc. Few Stockton officers have many options. Most would stay in any event as relocating to cities that are hiring, like Oakland and San Francisco would be expensive and the cost of living much higher.

  • ojfl

    These situations are a lose-lose for all. The problem is that the taxpayer will always take it in the chin. Calpers does not seem to stand to lose at all, even if these cities indeed go bankrupt and try to force a haircut on Calpers, the ultimate problem is the underfunding of Calpers will always come from the taxpayer, city or state.

  • bigfire

    Calpers sounds like the gangsters from the movie Goodfellas. Your business bad, ‘uck you pay me…

  • Federale

    It is the same case with firefighters. Many applicants for each position and most white male applicants have already completed a community college based academy at their own expense, as well as EMT training. They love firefighting work and will take any such job regardless of pay and benefits. Cutting wages and benefits for firefighters is a no-brainer. In any event, fewer firefighters die in the line of duty now than decades ago, which was the rationale for high pay and benefits.
    The real problem is that affirmative action interferes with the market mechanism for firefighter pay and benefits.

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