Like Vallejo before it, the city of Stockton, California is preparing to exit bankruptcy after nearly a year. Unfortunately, Stockton is also following Vallejo’s footsteps by refusing to include pension restructuring as part of the plan, despite the fact that Vallejo is again struggling with its pension burden less than five years after going through bankruptcy. Clearly, Stockton is hoping that it will succeed where its predecessor failed, but given the role that pensions have played in wrecking city finances from Rhode Island to Detroit to California, Stockton may find itself back in this position before long.Under these circumstances, cutting pension benefits looks like a no-brainer, but as the NYT notes, nobody is particularly keen to take on the largest public pension fund in the nation:
“No city wants to take on the state pension system by itself,” said Stockton’s new mayor, Anthony Silva, referring to the California Public Employees’ Retirement System, or Calpers. “Every city thinks some other city will take care of it.”…“They wanted to get out of bankruptcy in the worst possible way, and that’s just what they did,” said Dean Andal of the San Joaquin County Taxpayers Association, which fought the sales-tax increase. “If they go ahead and hire those new police officers, the city will be back in insolvency in four years.”
This may be true, but the question now is whether the recent news from Michigan, in which a judge ruled that Detroit could override constitutional protections for pensions in bankruptcy, will change that calculus at all. Stockton officials have already stated that the city has no plans to change course, but other cities in California are either already bankrupt or just hanging on; the Detroit ruling could help at least one of them work up the nerve to challenge Calpers head on. If they win, things could change fast.