A federal bankruptcy judge on Friday cleared the way for Stockton, California to cut health care benefits for retirees while it is in bankruptcy proceedings.Flood of City Bankruptcies Coming
Stockton is seeking Chapter 9 protection from its creditors and said that it would cut retiree health benefits while it reorganizes. Retired employees sued to stop those cuts.
Judge Christopher Klein on Friday issued a temporary order denying the bid to stop the benefit cuts, and he said a formal decision was on its way.
Stockton's attorneys had argued that bankruptcy law gave the city wide latitude on how to spend its revenue while it prepares a plan to restructure its finances.
"For the reasons explained in the forthcoming decision of this court, the Application for Temporary Restraining Order and Preliminary Injunction or in the Alternative for Relief from Stay is DENIED," Klein wrote.
This is a good start for what needs to happen. The next step needs to be huge clawbacks on promised benefits, preferably top down, so that those with the highest pension benefits bear the brunt of the hit.
As soon as cities realize this is the way out, a flood of bankruptcies will be on the way.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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