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Regarding Stockton, CA and its Bankruptcy
This is a discussion on Regarding Stockton, CA and its Bankruptcy within the Political News and Topics forums, part of the General Discussion category; First let me state that I live 20 miles from Stockton so this is news around here, but I understand its getting some play in ...
Post By Verteidiger
Regarding Stockton, CA and its Bankruptcy
First let me state that I live 20 miles from Stockton so this is news around here, but I understand its getting some play in the national media. There are some stories out there which are true and some not so much. For example it was stated that a janitor at City Hall could work for 32 days and get health insurance for life. That in fact is true. However the plan was to make it so they could go to the county hospital for care - for life - not get a premo insurance package paid for by the city. Still its a pathetic offering that was in fact made to all city employees at one point. There is a store out there about a Chief of Police on the job for 8 months for $240,000 a year retiring at 8 months and getting $204,000 a year for life. True again, but the story doesn't state the "Chief" was a 30 year veteran of the department - still those numbers are mind boggling. That story is indicative of our teachers unions in CA pulling the promotional retirement plan. You see teachers in CA get a percentage of their last 2 years salary for life. So they go on a 3 year retirement binge through the administrative (deputy principle, principle) route and elevate thier last two years of salary to draw a huge retirement. I have a great friend who is a 20 year teacher in CA schools, and he is going to do it himself - he knows it angers me - but he's going to look out for #1. He is paid $85k a year as a seasoned teacher for 9 months of work right now. His pay is high because he handles disabled kids, special needs kids, and foreign language kids, etc etc. His first year as a deputy principle will be $120k, his second year at $132k and third and final year at $145k. His retirement will be based on the average of $132k/$145k not the $85k he's made the last 5 years and lower pay he earned before that.
Now back to Stockton. The people there floated bonds for all kinds of crap. They have a boat dock on the delta (Marina), they have an ice skating rink for the minor league hockey team, they have a minor league baseball stadium, and have blown millions of dollars on "down town renovation" in one of the worst down town areas of all time. I would think they should be forced to auction those things off - I don't know. I do know this - they have floated bonds for sewer lines, water lines, storm drain lines and other necessities. Those are little harder to repossess. I don't know why they can't be made to pay the monthly fees necessary to cover those debts? WTF is that all about? Why is it they can walk away from those debts, and have to make good on retirement contracts that unions bought council members to get? I would think if I was lending a city money I would expect the tax payers to pay the bill - and I am shocked the bankruptcy court is letting them walk away from any of those debts? Oh wait; that judge and his staff are covered under the same retirement programs that the city is being made to pay in full.
There will be more cities and counties that follow this path. The only upside is that maybe the message that an entitlement society and unfunded, unsecured retirement plans granted to unions, etc are a glimpse into the future given this administration's agenda.
If the judges decision stands the rule of law will be that unions get made whole and muni bond holders will get the shaft.
Originally Posted by Rigged for Quiet
It's the same thing that happened in auto bail outs. The Unions made out and secured debt holders were screwed over. In an instant 200 yrs of bankruptcy law was side stepped in the name of stimulus.
Originally Posted by Ripon
I still can't believe that hasn't made it to the Supreme Court
The main benefit of filing for bankruptcy is to use the unique power the bankruptcy code allows for debtors, which is the power to breach any contracts that are not beneficial to the bankrupt debtor's estate. So the City can refuse to honor the contracts it has if those obligations are not in the best interests of the City financially going forward. So, the City can breach the contracts, and the other parties to the contracts get paid in "bankruptcy dollars" - translation: fractions of a penny on the dollar.
In addition, the City can force parties (people/companies) to honor the existing contracts it has, while literally being able to pick and choose which contracts it wants to get rid of in the bankruptcy, subject only to a "business judgment rule" analysis. So, they can keep any good deals they have, as long as they honor the contracts going forward, and dump all the bad deals they made by paying them off as claims worth pennies on the dollar (or less). Very powerful protection for a debtor.
Creditors will be tiered into classes. Secured (collateral holding) creditors usually are the top tier and get paid first. Stockholders and bondholders often get much less than their original investments, and can get totally wiped out - they just hold paper promising to pay them interest or dividends, and their principal, but these are just like contracts - they get converted into claims and get paid in bankruptcy dollars. Translation: they get screwed.
There will be more of these going forward. Cities have huge unfunded liabilities, and the only way out is to use the bankruptcy process to restructure those debts into manageable sums, or else, WIPE THEM OUT ALTOGETHER ("discharge the debt") in bankruptcy.
People who own stocks and bonds can get wiped out in a bankruptcy. Not everyone realizes this when they buy such paper....
The sound you just may have heard is the first rumblings of a coming storm. The third bubble is inflating now. Invest only if you understand what happens when things DO NOT work out as promised or originally planned.
I am not giving financial advice here. Just saying this is how it works when the wheels come off the track and the train crash begins....