The U.S. Bankruptcy Court in Sacramento ruled today that the City of Stockton is eligible for bankruptcy protection. The ruling follows a trial when Wall Street bondholders challenged the City's bankruptcy, claiming the City should have to stop payments to CalPERS. The Court said nothing in the federal Bankruptcy Code requires impairment of CalPERS benefits for a city to be eligible for bankruptcy. The Court also indicated it would be unconstitutional for the City to impair its contracts in any way except bankruptcy because the Constitution protects creditors.
In a press release, CalPERS praised the Court's decision, noting "Today’s action gives the City the opportunity to propose a forward looking plan of adjustment in the bankruptcy case that will allow them to restore long term financial stability and to provide essential services to the Stockton community through the City's valued public employees." CalPERS' also committed to continuing to protect and defend the integrity and soundness" of employees' pensions. Today's ruling clears the way for bankruptcy, but leaves open future challenges to the City's plan to pay back its debts.