Stockton, California files for Bankruptcy, Eliminates Retiree Health Benefits
On June 28, 2012, Stockton became the most populous city to file for bankruptcy. Stockton, a city of 300,000, has been particularly affected by the foreclosure crisis. Over the past three years, the city has cut $90 million in spending, but was unable to close a budget shortfall of $26 million this year, and so resorted to bankruptcy.
The city's workers and retirees will be most affected by the bankruptcy. The city currently has about 2,400 retirees, and half of them receive medical benefits. Stockton currently owes $147 million to CalPERS and $124.3 million to bond holders for its pension plan. The total unfunded liability for retiree benefits is $417 million. The city has announced that it will not change the pension plan during the bankruptcy proceedings. However, it has already reduced wages and ended retiree health benefits for the year, and plans to eliminate retiree health all together.
Some analysts worry that many more cities will use bankruptcy to avoid their pension obligations, as they face continued financial difficulties with limited assistance from states. In 2011, 13 cities filed for bankruptcy, up from 6 in 2010.
By Daniel S. Brome