In States like New York, California, and Illinois. It may have for WFC as well.The $900 million Stockton owes to the California Public Employees' Retirement System to cover pension promises is its biggest debt —as is the case with many struggling cities across California. So far Stockton has kept up with pension payments while it has reneged on other debts, maintaining that it needs a strong pension plan to retain its pared-down workforce.
The creditors who challenged Stockton's bankruptcy petition are the bond insurers who guaranteed $165 million in loans the city secured in 2007 to pay its contributions to CalPERS. That debt got out of hand as property tax values plummeted during the recession, and money to pay the pension obligation fell short.
Attorneys for the creditors argued that it was unfair for them to be paid 17-cents on the dollar for the loans while the retirement fund negotiated in flush times remains untouched.
Legal observers expect the creditors aggressively to challenge Stockton's repayment plan in the next phase of the process.
"That's where it will be precedent-setting. Does bankruptcy code apply to CalPERS or not? If bankruptcy code trumps state law, then that's huge and it has huge implications in terms of what happens next for other municipalities across California," said Denniston.
The city of nearly 300,000 has become emblematic of both government excess and of the financial calamity that resulted when the nation's housing bubble burst. Its salaries, benefits and borrowing were based on anticipated long-term developer fees and increasing property tax revenue. But those were lost in a flurry of foreclosures beginning in the mid-2000s and a loss of 70 percent of the city's tax base.
By 2009 Stockton had accumulated nearly $1 billion in debt on civic improvements, money owed to pay pension contributions and the most generous health care benefit in the state — coverage for life for all retirees plus a dependent, no matter how long they had worked for the ci