If pension obligations are impaired in the Stockton, Calif., chapter 9 case, state lawmakers could respond by closing the door to bankruptcy for California municipalities, State Treasurer Bill Lockyer predicted on Wednesday, Bond Buyer magazine reported yesterday. "As a lawyer and a policymaker, I have a different view about the fundamental issues of a state-run pension system and whether it's even subject to jurisdiction of a bankruptcy court in this circumstance," he said. U.S. Bankruptcy Judge Klein gave an oral ruling last week during a hearing on Stockton's proposed plan to exit bankruptcy that the city's California Public employees' Retirement System pensions can be adjusted in chapter 9 bankruptcy. The city had not proposed to impair its obligations under its plan, and has not indicated that it plans to do so following the judge's decision. Lockyer said that depending on what happens in the bankruptcy case, which is set to pick up again on Oct. 30, there could be major political consequences. "If it looks like bankruptcy judges in California are going to be activists in this domain, I wouldn't be very surprised to see a coalition of teachers, nurses, firefighters, law enforcement people, district attorneys—and the list goes on—all lobby to the legislature to change the rules so that no municipality can bring a bankruptcy action in a chapter 9 proceeding," Lockyer said.
