A key planner of the Stockton bankruptcy, City Manager Bob Deis, plans to retire on Nov. 1, shortly before what could be a crucial public vote on a sales tax increase that has split the city council.
Deis battled with a police union that bought a house next to his home and subpoenaed his wife, oversaw deep staff cuts and structured an orderly bankruptcy that was a sharp contrast to San Bernardino’s emergency bankruptcy.
But the Stockton bankruptcy plan, which cuts bond payments but not pensions, has drawn well-funded opposition from bond insurers, who complain of unfair treatment because the city’s largest creditor, CalPERS, is untouched.
When Dies was hired in July 2010, the city council “knew something was amiss” but not how bad city finances had become, he said in a news release. Dies expects to have accomplished what he was asked to do by Nov. 1.
“Since my arrival, we were able to balance extremely difficult budgets without laying off a single police officer,” he said, “and we went from utter chaos to restoring order and implementing business plans.”
The former mayor and several council members who hired Deis were ousted by voters in November. The new mayor, Anthony Silva, vowed during his campaign to put more police on the city’s crime-ridden streets.
With financial support from developers, Silva is backing a “Safe Streets” initiative for the November ballot, a half-cent sales tax increase intended to add at least 100 more police officers.
Deis warns that the initiative, intended to limit new sales tax revenue to police, could delay or disrupt the city’s exit from bankruptcy. The current city council opposed the initiative on a 4-to-3 vote.
As directed by the city council, Deis is working on a sales tax proposal for the November ballot that would fund the city’s “Marshall Plan” to reduce crime and perhaps pay some creditors as the city emerges from bankruptcy.
The pension issue surfaced during a debate on the two crime-fighting measures last month. A developer backing the Safe Streets initiative, Anthony Barkett, said the bankruptcy plan should address the high cost of pensions.
“I don’t think we’re having that debate and asking the right questions,” said Barkett, quoted in the Stockton Record newspaper.“This is our only chance to ever do anything about it. If we don’t, forget it.”
The city argues that pensions are needed to remain competitive in the job market, particularly for police. The bankruptcy plan eliminates the city’s retiree health care, a cut retirees tried to temporarily block in court.
U.S. Bankruptcy Judge Christopher Klein declined to block the cut while acknowledging some “tragic hardships” may result. He said the court cannot “interfere with” the property or revenue of a debtor in bankruptcy.
The city told the judge yesterday that a 13-member group appointed to represent retirees agreed to a $5.1 million lump sum payment for future retiree health care worth an estimated $300 million to $600 million and a promise not to cut pensions.
“The agreement to not impair the pension benefits is a major part of this agreement,” an attorney representing the retiree group told the judge.
The agreement will be included in the proposed “plan of adjustment” the city expects to file in September. A city news release said the retirees and other creditors will have an opportunity to vote on the plan.
Judge Klein said in April when he ruled Stockton eligible for bankruptcy that the bond insurers claim of “unfair discrimination” must be considered in the plan of adjustment proposed by the city to reduce debt before emerging from bankruptcy.
The judge made the same point yesterday as he rejected a motion by Assured Guaranty to change his finding in the eligibility ruling that the bond insurer did not negotiate in “good faith” before the city filed for bankruptcy last June.
His eligibility ruling said bond insurers “voted with their feet” and were a “stonewall” when they left mediation, prescribed by state law, after the city refused to negotiate a cut in CalPERS debt. Then the insurers failed to pay their share of mediation costs.
“The CalPERS issue may be very significant later in the case,” the judge said yesterday. “The point is it’s later in the case, not at the outset.”
The judge said in his ruling yesterday that the bond insurers have been “itching for a fight over pensions, to answer interesting questions whether the city has an executory contract with CalPERS and whether liabilities to CalPERS might be dischargeable debts.”
And, he said: “CalPERS itself has been bellowing and pawing the sidelines during the eligibility phase waiting for the main event that will come only after relief is ordered.”
The judge said an assertion by the city’s bankruptcy attorney, Marc Levinson, that the bond insurer’s obstinacy in opposing eligibility is “all about leverage” has some “resonance” with him.
“The objectors are trying to get their way by forcing the city to incur massive legal expenses that should not be necessary,” Klein said in the ruling on the Assured Guaranty motion.
“An appropriate method for achieving their goal of spreading the pain to CalPERS would be to challenge CalPERS head-on in battle over an actual plan filed after relief is ordered, in which battle the city would watch from the sidelines,” the judge said.
The tax issue is sparking a battle on several fronts. At the end of his state of the city address, an exuberantly aggressive Mayor Silva donned a helmet and waved a spiked mace while urging residents to join him in the fight to change the city.
Last week Silva was on defense after an e-mail sent to thousands said he has been accused of sexual battery. A young woman accused him of offering her drinks and improper touching, KCRA TV reported, but officials said the charge had no merit and are looking at other accusations.
A Stockton Record editorial last month said putting two competing tax measures on the ballot would likely doom both, citing a “well thought out” analysis by Jeffrey Michael, director of the University of the Pacific Business Forecasting Center.
“We would urge Silva to back away from the single-purpose tax approach and work with his fellow council members toward a flexible approach with built-in guarantees about how the money will be spent,” said the Record editorial.
The city’s bankruptcy attorney, Levinson, told the judge yesterday that Deis remains in control and continues to “direct the team” until Nov. 1. He said his direction from Deis and city staff is to “charge forward.
Ed’s Note: Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at http://calpensions.com/