The city of Stockton has begun a four-day trial in U.S. Bankruptcy Court. At stake: whether the city should be eligible for Chapter 9 bankruptcy protection.
The case has other local governments watching closely – particularly those that still face large budget deficits. Chris McKenzie with the League of California Cities says he believes cities will “move heaven and earth” to avoid future bankruptcies.
“The process is extremely difficult and extremely expensive and extremely painful, and no city would go into it if it had a viable alternative,” says McKenzie.
What’s attracting the most attention is the trial’s potential effect on Stockton’s payments to the California Public Employees Retirement System, or CalPERS.
Stockton’s creditors say they shouldn’t be the only ones to lose money when the city is still making full payments to the pension fund. The city and CalPERS have argued state law requires those payments.