| SAN FRANCISCO, April 26
SAN FRANCISCO, April 26 A U.S. judge in July
could take up the issue of whether a bankrupt city can shield
workers' pensions while inflicting heavy losses on bond holders
and other creditors, a lawyer for California's pension fund for
public employees said on Friday.
Since filing for bankruptcy last year, the California city
of Stockton has made a point of maintaining payments to the
California Public Employees' Retirement System, or Calpers,
while targeting creditors for steep losses.
Whether Stockton may press on with that approach could be
taken up in coming weeks by U.S. Bankruptcy Judge Christopher
Klein, who did not take up the matter during a three-day trial
last month on Stockton's eligibility for bankruptcy.
Instead, he ruled the city of about 300,000 established it
is eligible to proceed with its bankruptcy case and craft a
so-called plan of adjustment for its debts.
But Klein at the same time signaled the closely watched role
of Calpers in Stockton's bankruptcy case could come into focus
when the plan of adjustment emerges.
Stockton aims to file the plan in the third quarter with an
eye toward exiting bankruptcy by the end of the year. That means
the plan could be put to Klein as early as July, said Michael
Gearin, an attorney for Calpers in the Stockton case.
Stockton is the biggest U.S. city to pursue Chapter 9
bankruptcy, a move the city made in the face of a $26 million
shortfall that years of steep spending cuts failed to prevent.
CHALLENGING CITY'S PRIORITY
To prop up its budget while pressing its bankruptcy case,
Stockton pressed bondholders to swallow major losses, prompting
them and the city's bond insurers to challenge the city in
Stockton's decision to keep paying into the state pension
fund known as Calpers has been hotly disputed by the creditors,
who argued in the recent eligibility trial that the city would
not be able to repair its finances without tackling its pension
The creditors include bond insurers Assured Guaranty Corp,
Assured Guaranty Municipal Corp and National Public Finance
Guarantee Corp. They were joined by Wells Fargo Bank, the
Franklin California High Yield Municipal Fund and the Franklin
High Yield Tax-Free Income Fund.
Stockton officials say they need to maintain payments to
Calpers to retain and recruit city employees and that state law
bars the city from impairing payments to the fund.
The officials also say retired Stockton employees will
suffer enough under the city's financial restructuring by losing
their city-provided medical coverage.
Calpers was sidelined during the eligibility trial but is
prepared to defend Stockton's pension payments before Klein.
Marc Levinson, a lawyer for Stockton, said a best case
scenario is for the city and its creditors to reach settlements
so they are included in an amicable plan of adjustment.
The two sides will be negotiating in confidential talks even
as Stockton works on its plan of adjustment, Levinson said,
noting he is optimistic about the talks.
"People are going to do their best," he said. "Klein has
made it clear at every opportunity that he would like to see