Stockton, California has officially become the first major city in the United States to file for bankruptcy. On the first of April, a federal judge ruled that Stockton is eligible for financial protection through bankruptcy. After filing for bankruptcy, Stockton made their case that the city is broke and US bankruptcy Judge Christopher Klein agreed. While government debt has been a long-time struggle, California is home to the only cities that filed for bankruptcy nationwide. San Bernardino and Mammoth Lakes also sought bankruptcy protection, but Stockton is certainly the most notable city.
Stockton’s Pension Controversy
In the midst of the bankruptcy announcement, concern rose over what would happen to Stockton’s pension payments. The city owes an estimated $900 million to California’s Public Employees Retirement System. As with many California cities, the amount owed to pensions is Stockton’s largest debt. After filing for bankruptcy, Stockton has yet to announce how it will officially affect the pension payments. Many citizens are concerned, especially as Stockton’s bankruptcy has also slashed its police and fire departments and other spending.
What makes Stockton’s bankruptcy case so historic is the fact that it is likely to set the nationwide precedent for cities filing for bankruptcy. In fact, the U.S. Supreme Court could hear an appeal for this case.
With the pensions and the status of Stockton’s bankruptcy in the air, many are asking who will end up paying for this. Ultimately, Stockton will have to prove that whatever approach they seek won’t harm the city’s chances of returning to solvency. It is expected that a federal judge will determine who is forced to make future sacrifices when a city files for bankruptcy.