Stockton Pension Ruling: A Game Changer

October 2, 2014 – In The News
The Bond Buyer

Michael A. Sweet was quoted in The Bond Buyer article, “Stockton Pension Ruling: A Game Changer.” Full text can be found in the October 2, 2014, issue, but a synopsis is below.

A ruling in the Stockton bankruptcy case that pension obligations can be impaired could increase the efforts of other cities to address pension costs, but is unlikely to lead to a rush to bankruptcy court, attorneys say.

“Filing for Chapter 9 is such an extraordinary step. I think cities are hard-pressed to do it, if they haven’t found themselves there already, because the economy is getting better and things are looking up,” Sweet said. “A lot of cities are working out solutions with their pension funds on their own, consulting with CalPERs or whoever else in order to avoid Chapter 9.”

According to Sweet, the ruling is not binding because it was given in a trial court and must be an appellate court decision in order to have precedential authority.

But the ruling could have greater significance in the long run if another economic downturn were to happen, Sweet said.

“If we see an environment like we saw in 2011 and 2012, I think cities that are looking at the possibility of filing for Chapter 9 will be emboldened by what Judge Klein said, which could cause them to be more disposed to file for Chapter 9 than they might otherwise have been” he said.