The city of Stockton, CA is set to emerge from bankruptcy next year in a settlement with bond holders that does not include cutting back on pension rights. All over the country, there’s a reckoning coming over whether bankruptcy courts can limit pension rights protected in state constitutions; it appeared that Stockton would be one of the first tests.
In the Stockton bankruptcy case settlement, however, the bond holders blinked first, agreeing to take as much as a 50% haircut on some bonds. Pending a vote to increase a sales tax, $300 million in revenue is expected to be raised as well.
So if there is to be a reckoning, it will have to come in cities like Detroit or San Bernardino. Recently, Kevyn Orr, Detroit’s emergency manager, backed off an earlier statement that a pensioner’s rights are “sacrosanct.” When grilled by the bankruptcy court about that statement, Orr answered: "I would say that his rights are in bankruptcy now. I'd say those rights are subject to the supremacy clause of the U.S. Constitution."
Meanwhile, a coalition of California mayors is pushing an initiative to amend the state’s constitution to allow entities to limit pension rights.
