| The California city of Stockton became for a time the largest U.S. municipality to go bankrupt when it filed for Chapter 9 protection in June 2012. The city’s top creditor is the $265 billion, Sacramento-based California Public Employees’ Retirement System. Stockton filed with the expectation that CalPERS would get all of the $30 million owed to the fund annually and that the city would keep paying state retirement benefits. That’s what happened with Vallejo, California — previously, the biggest U.S. city to declare bankruptcy. Stockton’s bondholders and capital market creditors objected to the plan, though. At an April 1 hearing, Chief Judge Christopher Klein of the U.S. Bankruptcy Court for the Eastern District of California raised the possibility that the court might not rubber-stamp the payment of pension obligations to CalPERS. Klein, 67, who holds an MBA and a JD from the University of Chicago, showed a willingness to confront one of the main questions in municipal bankruptcies: Can the courts undo pension promises? Although the judge said it wasn’t the time to tackle such matters, he warned that “this does not mean there’s not potentially a serious issue involving CalPERS.” In early October, Stockton agreed on a road map that would see it continue its payments to CalPERS in full and make other creditors whole. | |||||
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