SAN FRANCISCO – The judge in Stockton, Calif.’s bankruptcy case has allowed the city to move forward with plans to cut retiree medical benefits.
Retired city employees sought an injunction that would have blocked the city from cutting retiree medical benefits during the bankruptcy process. But U.S. Bankruptcy Court Judge Christopher M. Klein ruled that the court does not have the power to interfere with a city’s property or revenue during the Chapter 9 process.
The judge also denied the Association of Retired Employees of the City of Stockton’s request to take its case to a federal District Court.
“Although the city’s unilateral interim reduction of retiree health benefit payments may lead to tragic hardship for individuals in the interval before their claims are redressed in a Chapter 9 plan of adjustment, the motion for injunctive relief must be denied,” Klein wrote in his decision.
Stockton, a city of around 300,000 residents in California’s Central Valley, filed for bankruptcy at the end of June.
The city has also outlined plans to stop paying bondholders while in bankruptcy after already defaulting on several bonds before entering bankruptcy.
“The decision confirms the city’s position that while the bankruptcy court has exclusive jurisdiction over the restructuring of the city’s debt, it cannot direct how the city uses its property and resources, including spending its money, while the bankruptcy case is pending,” Stockton said in a statement.
The retirees association said it will explore if there are any other legal options left, according to a statement on its website.
Stockton’s spending plan during bankruptcy only calls for a stipend toward the monthly retiree medical insurance costs until the end of fiscal 2013, then stops payments, city officials said in a press release. The city said 45% of its 2,400 retirees participate in the city’s medical plan, which would have cost it $9.2 million from its general fund and doubled in 10 years.
The city said the insurance cost for a retiree and one dependent is $1,577 a month and $772 for a retiree and dependent that are eligible for Medicare.
Stockton said it is working with medical insurer Kaiser Permanente to offer a lower-cost plan to retirees by this fall.
Last year, Stockton started requiring employees and retirees to pay 20% of medical services.