SACRAMENTO — Stockton, Calif., remains at least a few months away from a decision about whether it can exit from Chapter 9 bankruptcy.
In a hearing Tuesday, Bankruptcy Judge Christopher Klein set a value for three properties that are collateral for $35 million of bonds held by the last major creditor that hasn't signed on to the city's bankruptcy plan, and talked about his "preliminary findings" about Stockton's pension liabilities.
Then he scheduled the next hearing in the case for October.
While Klein did not offer any specific ruling on the city's confirmation plan, he did share some of his thoughts about the pension issue.
"I have some issues I want to put on the table and invite some further briefing from affected parties so there will be an opportunity to straighten me out before I make some dramatic boneheaded mistake about not understanding something very simple about the law," Klein said.
One point he brought up was the validity of the $1.5 billion termination fee that the California Public Employees' Retirement System said it could impose on Stockton if it breaches its contract.
"Everyone assumes this number is valid," Klein said. "I'm going to need some explanation why I should take that seriously."
Klein also questioned whether CalPERS is an actual creditor of the city. Based on his interpretation of California public employee retirement Law, Klein said CalPERS itself could not be impaired, but employees' pensions could be.
"It looks to me like CalPERS does not bear the financial risk of a shortfall in payments," he said. "Instead it's on the employee."
Such questions will be revisited during the next hearing, which is scheduled for Oct. 1.
Klein said Tuesday the three properties - two golf courses and a park - the city used as collateral on the lease revenue bonds held by Franklin Advisers are together worth slightly over $4 million - and not worthless, as the city had argued.
Klein made no other ruling regarding the city's exit plan or whether its contributions to CalPERS should be impaired under the plan.
Tuesday's hearing follows confirmation hearing proceedings that began as a four-day trial in May and went into an extra day in June.
The previous hearings focused mainly on Franklin's objections to the city's plan, which proposes to repay the investment firm $350,000 for a $35 million loan.
Franklin had argued that it was wrong to leave CalPERS and city pensions untouched in a plan that offered the investment firm so little.
The trial concluded on June 4 after Klein called for another hearing to determine the value of the three properties, Oak Park, Swenson Golf Course, and Van Buskirk Golf Course.
Stockton, which filed for bankruptcy in June 2012, previously estimated the properties had no value- saying they were run-down, in need of repairs, and actually losing money. Franklin, however, estimated their value to be at least $6 million.
"The problem with appraisals is everyone comes in with an appraisal that supports their position," Klein said Tuesday. "Judges have long figured out that they need to be skeptical with their opinions."
Klein settled on an amount between the two estimates, at $4.052 million. Now Stockton will have to change its plan of adjustment to decide how to handle the new figure.
