The key substantive issues differ in the Stockton, Calif., and Central Falls, R.I., bankruptcy filings, said the Chapter 9 attorney for Central Falls.
Bankruptcy Judge Christopher Klein in Sacramento, Calif., ruled last Monday that Stockton was eligible to file under Chapter 9, setting the stage for further negotiations and proceedings to determine if, as the city has proposed, its plan of debt adjustment can provide for payment of unsecured pension obligations in full, but impair payments of unsecured bond obligations.
"It should be noted that this key Stockton issue is the opposite of the key issue in the Central Falls bankruptcy, which was whether a plan of debt adjustment can provide for payment in full of bond obligations, which are secured by a statutory lien on a city's general revenues, while pension obligations are being impaired," said Orson.
Central Falls, a city of only one square mile and a 19,000 population, filed under Chapter 9 in August 2011 and exited 13 months later.
"I would be careful in drawing any definitive conclusions as to the implications of yesterday's decision on struggling cities outside of California for several reasons," Orson said. "Even when Judge Klein ultimately decides whether bond obligations and pension obligations can be treated differently, the impact of his decision will be limited."
