The State Worker

Chronicling civil-service life for California state workers

August 24, 2012
Column Extra: Judge says Stockton bankruptcy can break retiree health guarantees

With just 400 to 450 words for our weekly State Worker column, much of what we learn each week never sees print. Column Extras give you some of the notes, the quotes and the observations that inform what's published.

Writing is often as much about deciding what to leave out as it is what to put in. One of the items we decided to cut from Thursday's State Worker column was a reference to Association of Retired Employees of the City of Stockton v. City of Stockton. The case is significant because it signals the court's view of contract and pension law vs. bankruptcy law.

Association of Retired Employees of the City of Stockton v. City of Stockton

The lawsuit filed by a retirees' group sought a court order for the city to continue paying for their health benefits while Stockton's Chapter 9 bankruptcy case plays out. The retirees made the same argument that is made about in inviolate nature of public pensions, namely that the contracts clause of the U.S. Constitution, a similar clause in the California Constitution an other provisions of state law guarantee that the benefit can't be summarily altered.

Stockton filed for bankruptcy on June 28 and on July 1 adopted a budget that included unilaterally reducing retiree health benefits. That illegally impaired the city's contract with retirees, the plantiffs claimed.

U.S. Bankruptcy Court Judge Christopher Klein disagreed. The key sentence in his 40-page opinon on Aug. 6 fleshed out a shorter ruling for the city he issued several weeks ago.: "In sum, even if the plaintiffs' benefits are vested property interests, the shield of the Contracts Clause crumbles in the bankruptcy arena."

About 1,100 retired Stockton employees have the city's health care plan. The city's cost to cover them this year would have been $9.2 million.

We considered referencing Klein's ruling in today's Thursday's State Worker column, but decided against it for a few reasons: It might not be fair to suggest the legal reasoning underpinning an opinion on retiree health benefits is a template for a similar ruling on pension benefits. Explaining the case would have chewed up a lot of words in a 450-word column. And it was slightly off-track from the point of the column, namely that Wall Street is now engaging in the pension debate.

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About The State Worker

Jon Ortiz The Author

Jon Ortiz launched The State Worker blog and a companion column in 2008 to cover state government from the perspective of California government employees. Every day he filters the news through a single question: "What does this mean for state workers?" Join Ortiz for updates and debate on state pay, benefits, pensions, contracts and jobs. Contact him at (916) 321-1043 and at jortiz@sacbee.com.

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