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A major focus in the next phase of Stockton's bankruptcy proceedings will be whether pensions negotiated in good economic times can be cut. "I don't know whether spiked pensions can be reeled back in," U.S. Bankruptcy Judge Christopher Klein said during his ruling on Monday. "There are very complex and difficult questions of law that I can see out there on the horizon." Attorneys for CalPERS at times attempted to speak to the creditors' assertions that the pension fund should share any pain in Stockton's recovery plan, but the judge said their time would soon come during proceedings. "It's no secret (creditors) have CalPERS in the crosshairs of the dispute," Klein said. The city of nearly 300,000 has tried to restructure some debt by slashing employment, renegotiating labor contracts, and cutting health benefits for workers. Library and recreation funding have been halved, and the scaled-down Police Department only responds to emergencies in progress. The city crime rate is among the highest in the nation. Since cities can't liquidate assets, those that declare bankruptcy must come up with a plan for creditors to forgive some of the debt. So far, Stockton has kept up with pension payments while reneging on other debts, maintaining it needs a strong pension plan to retain its pared-down workforce. Legal observers of the first-ever Chapter 9 bankruptcy case questioning state pension obligations expect an appeal to decide whether the 10th Amendment that gives rights to states is more powerful than federal bankruptcy code. Either the judge will decide that CalPERS obligations must be cut and the state will appeal, or he will say state law forbids CalPERS from negotiating and the creditors likely will appeal. "We're going to get new precedent no matter what happens," Denniston said.
[Associated
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