Lodinews.com

default avatar
Welcome to the site! Login or Signup below.
|
||
Logout|My Dashboard

Stockton bankruptcy is hard hit for city retirees

Print
Font Size:
Default font size
Larger font size

Posted: Thursday, June 28, 2012 12:00 am | Updated: 6:05 am, Thu Jun 28, 2012.

When Stockton becomes the largest U.S. city ever to file for bankruptcy, it will strike a hard blow to residents, especially city employees and retirees whose health benefits and pensions helped drive the city toward insolvency.

City Manager Bob Deis said late Tuesday that officials were left with little choice but to recommend bankruptcy after failing to hammer out deals with creditors to ease the city's $26 million budget shortfall.

Deis expects the city to file for Chapter 9 protection by Friday.

Stockton will join a number of other cities and counties  across the nation that have plunged into financial crisis as the recession made it tough to cover rising costs involving current and former employees, bondholders and vendors.

"What's going on in Stockton is endemic to what's going on all over the state and the country," said Michael Sweet, a San Francisco bankruptcy attorney at Fox Rothschild LLP. "Local governments are hurting and strained under the current pension and compensation systems. These systems are not appropriate for the type of economy this country has evolved into."

At a standing room-only Stockton City Council meeting Tuesday, numerous former city employees talked about their life-threatening medical conditions and said cuts to their health benefits prompted by the city's financial straits meant they would, in effect, lose their insurance.

"Some people will be devastated. There are those who have such severe medical problems that they will not be taken up by any medical company," said Gary Gillis, a retired fire chief on the board of directors of the city retiree association. "This plan appears to be a sledgehammer or a machete."

Several retirees broke down in tears after the city approved changes to their medical benefits as part of a bankruptcy budget adopted by the City Council.

"For me, bankruptcy might as well be a life sentence," said Gary Jones, a retired police officer, who was diagnosed with a brain tumor 10 years ago. Jones said his medical insurance enabled him to undergo chemotherapy and other treatments, which he said will be unaffordable at the lower level of coverage.

During the past three years, the city has dealt with $90 million in deficits in part through drastic cuts in police and fire personnel, even as residents said they have to deal with recurring break-ins and robberies, a climbing murder rate, homelessness and plummeting property values.

Once a beneficiary of the housing boom, the city now has the second-highest foreclosure rate in the nation. Its unemployment rate has doubled in the past decade and now hovers around 16 percent while a fifth of residents live below the poverty line.

"The average citizen will not put up with this," said Gregory Pitsch, a 22-year-old unemployed resident who made an unsuccessful run for mayor. "Their home prices have plummeted, they have no jobs, a lot of people are getting fed up so that they have to resort to crime."

Betty Garcia, who co-owns a downtown jewelry store with her husband, said her community is starting a neighborhood watch group to respond to a rise in crime and lack of police response, which they expect will only get worse.

"We already hear gunshots every night," Garcia said. "It's becoming like listening to the train go by. People don't even call the cops anymore."

Experts say municipalities such as Stockton must find a way to lower their contractual obligations to current and former employees as the cost of health care skyrockets and people are living longer.

"When times were good, it was easier to expand benefits and pensions and not pay as much attention to the unfunded liabilities that were growing," said David Dubrow, a bankruptcy lawyer at Arent Fox LLP in New York City. "Now that times are not good and not good for prolonged periods, those costs are becoming severe."

Some states have passed legislation related to changing pensions and retirement benefits for new employees, Dubrow said. But it's difficult to change the rules for existing employees and even more complicated for retirees, because state constitutions and other legal issues may prevent such restructuring.

In Stockton, pensions will not be affected by a bankruptcy filing, but health benefits for employees and retirees will.

There are about 2,400 retirees in the city and slightly less than half of them receive medical benefits. The unfunded liability for those benefits stands at $417 million.

As of July 1, the bankruptcy plan approved by the City Council reduces contributions to current employee and retiree health benefits and eliminates benefits for employees with less than 10 years of city service. And as of July 2013, it completely eliminates city-funded medical benefits for retirees.

Thirteen cities, counties and other government entities filed for bankruptcy protection last year — the highest annual level in nearly two decades.

Stockton, a river port of 290,000, would be the seventh U.S. municipality to file this year and the first California city since Vallejo, which sought protection in 2008, according to James Spiotto, a Chicago bankruptcy attorney who tracks municipal bankruptcies.

Since Congress added Chapter 9 to the bankruptcy code in 1937 to allow municipalities to seek protection, some 640 government entities have filed. Last year's 13 filings more than doubled the six filed in 2010. That was the most since an equal number were filed in 1994.

Bankruptcy is a bandage for Stockton that won't solve the city's deeper problems, said Garcia, the jewelry store owner.

"With all the cuts, it's just so much, it will have a trickle effect on everybody," Garcia said. "If we make it out of this, I don't know how much skin we'll have left."

© 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

More about

More about

More about

Rules of Conduct

  • 1 Use your real name. You must register with your full first and last name before you can comment. (And don't pretend you're someone else.)
  • 2 Keep it clean. Please avoid obscene, vulgar, lewd, racist or sexually oriented language.
  • 3 Don't threaten. Threats of harming another person will not be tolerated.
  • 4 Be truthful. Don't lie about anyone or anything. Don't post unsubstantiated allegations, rumors or gossip that could harm the reputation of a person, company or organization.
  • 5 Be nice. No racism, sexism or any sort of -ism that is degrading to another person.
  • 6 Stay on topic. Make sure your comments are about the story. Don't insult each other.
  • 7 Tell us if the discussion is getting out of hand. Use the 'Report' link on each comment to let us know of abusive posts.
  • 8 Share what you know, and ask about what you don't.

Welcome to the discussion.

2 comments:

  • Darrell Baumbach posted at 1:41 pm on Mon, Jul 2, 2012.

    Darrell Baumbach Posts: 9403

    inevitable consequence of unions in california... unsustainable

     
  • Jerry Bransom posted at 7:46 am on Thu, Jun 28, 2012.

    Jerry Bransom Posts: 363

    Failure of Leadership plain and simple. You get what you vote for. This should be a wake up call to people who refuse to look at ALL government employees and hold them to the same rules we all must live by.

     

Video

Popular Stories

Poll

Should graduations return to the Grape Bowl?

Lodi Unified leaders are moving Lodi and Tokay high school graduations from the Grape Bowl to the Spanos Center at UOP in Stockton. They cite limited seating, costs and unpredictable weather at the Grape Bowl. But others say graduations at the Grape Bowl are an important Lodi tradition, and one reason many supported renovating the stadium. What do you think?

Total Votes: 83

Loading…

Mailing List

Subscribe to a mailing list to have daily news sent directly to your inbox.

  • Breaking News

    Would you like to receive breaking news alerts? Sign up now!

  • News Updates

    Would you like to receive our daily news headlines? Sign up now!

  • Sports Updates

    Would you like to receive our daily sports headlines? Sign up now!

Manage Your Lists