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Judge: Stockton must treat pension like other debt

By WTOP Staff

DON THOMPSON
Associated Press

SACRAMENTO, Calif. (AP) — Striking at the sanctity of public pensions in California, a federal judge ruled Wednesday that U.S. bankruptcy law allows the city of Stockton to treat pension fund obligations like other debts, meaning the city could trim benefits.

Stockton argued that it must make its pension contributions for public employees before its creditors are paid the entire amount they are owned.

The case is being closely watched because it could help clarify who gets paid first by financially strapped cities around the nation — retirement funds or creditors.

The ruling was prompted by a key creditor’s contention that pension obligations should be treated like other debts. Franklin Templeton Investments said the pension payments are fair game as it tries to collect on an unsecured $32.5 million claim against the city.

U.S. Bankruptcy Judge Christopher Klein said he would announce his decision on Oct. 30 on the city’s overall plan to leave bankruptcy and the contention by Franklin Templeton.

California pension officials said they expect his decision Wednesday on the pension plans to be appealed.

Attorneys had argued that California law gave pension funds special protections beyond those offered in other cases such as the bankruptcy declaration in Detroit.

In making his ruling Wednesday, Klein said, “California public employee retirement law … is simply invalid in the face of the supremacy clause of the United States Constitution.”

That means federal bankruptcy and contract law applies to the pension fund, “just like anybody else,” Klein said.

Stockton bankruptcy attorney Marc Levinson said employees of Stockton could be forced to take a 60 percent pension “haircut” if the judge rejects its overall reorganization plan.

That plan calls for continuing full payments to the giant California Public Employees’ Retirement System. If the plan is approved by Klein, his ruling on treating pension payments like other debts would have no practical effect, CalPERS attorney Michael Gearin told reporters.

Stockton can afford to pay Franklin Templeton in full over 30 years even if it also keeps making its pension payments, Franklin Templeton Investments attorney James Johnston told Klein.

The judge spent much of the morning questioning whether CalPERS and its members enjoy a protected status under federal and state laws.

“One can’t mess with CalPERS, that’s the vernacular way of putting it,” the judge said at one point, summarizing the view of CalPERS and Stockton officials.

“Is CalPERS a state unto itself?” Klein mused later.

Stockton, an inland port city, became the largest city in the country in 2012 to file for Chapter 9 protection before Detroit made the move last year.

City manager Kurt Wilson said after the hearing that another month’s delay in a final ruling on the city’s future won’t matter as Stockton fights for revival.

“As long as we get to the right place, then a little inconvenience won’t hurt,” he said.

Before the recession, Stockton leaders spent millions of dollars revitalizing the downtown area with a new City Hall and building a marina, sports arena and ballpark. The city issued about 3,000 permits annually to build new homes, and it paid police premium wages and health benefits.

With the recession, building dried up, and Stockton became ground zero for home foreclosures. Like many residents, City Hall couldn’t pay its bills. The city slashed its budget by millions of dollars and laid off 25 percent of its police officers. Crime soared.

The city about 80 miles east of San Francisco wants Judge Klein to approve its plan for reorganizing more than $900 million in long-term debt. Franklin Templeton Investments wants the judge to reject the proposal.

The city has reached deals with all of its major creditors, except for Franklin.

“It takes two to tango,” said Levinson, the city’s bankruptcy attorney. “We were unable to reach a deal.”

Franklin attorney Johnston said the company is being offered 1 cent on each dollar for a loan given to Stockton in 2009 to build firehouses and parks, and to move its police dispatch center.

Johnston told the judge that Stockton struck much more favorable deals with other creditors.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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