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Stockton Can Suspend Police Accrued Vacation Payouts, Judge Says

April 14 (Bloomberg) -- Stockton, the central California city trying to avert bankruptcy, can continue suspending accrued vacation and sick time payouts for its retiring and departing police officers, a state judge ruled.

San Joaquin County Superior Court Judge Lesley D. Holland yesterday rejected the Stockton Police Officers’ Association’s request for an order reinstating the pay. David E. Mastagni, a lawyer representing the association, said some officers have spent 30 years accruing the compensation.

“I’m proceeding on the assumption that bankruptcy, if not a certainty, is a highly probable outcome,” Holland said. The city is trying to remain solvent and win concessions from creditors through negotiations under a state law designed to discourage municipal bankruptcies, the judge said.

The 60 days of talks that started last month are an “orderly process,” and “the city should have the time that the Legislature has given it,” Holland said.

Stockton, a farming center about 80 miles (130 kilometers) east of San Francisco, is struggling under escalating retiree costs, dwindling tax revenue, accounting errors and the lingering effects of the recession. The city has said in a court filings that it is “teetering precariously on the edge of insolvency.”

City Default

The City Council on Feb. 28 agreed to extend its fiscal emergency declaration, default on $2 million in bond payments and suspend sick leave and vacation payouts to retiring workers. Officials decided to suspend the payouts to discourage workers who fear the mediation would lead to a cut in their benefits from retiring early and draining city coffers.

On April 12, San Francisco-based Wells Fargo & Co., the fourth-largest U.S. bank by assets, was awarded possession of three Stockton parking garages in a separate lawsuit it filed as a bond trustee against the city. San Joaquin County Superior Court Judge Roger Ross made the decision about who controls the garages after Stockton missed a $779,935 payment on lease revenue bonds issued in 2004.

Mastagni said he was disappointed by yesterday’s ruling. He said the judge concluded the officers’ over-arching suit, which accuses Stockton of illegally cutting police pay by about 30 percent by declaring an emergency rather than negotiating concessions, has a chance of succeeding. That determination will give the officer’s arguments more weight as a bankruptcy claim if that’s what Stockton ends up doing, Mastagni said.

Jonathan V. Holtzman, a lawyer for the city, told Holland at yesterday’s court hearing, “None of us will ever see a better case for an emergency than the one that exists here.”

“The city is truly broke,” he said. “We are very close to bankruptcy.”

Yesterday’s ruling permits Stockton to focus on mediation “without having individual creditors elbow their way to the front of the line,” Holtzman said after the hearing.

The case is Stockton Police Officers’ Association v. City of Stockton, 39-2010-00245197, Superior Court of San Joaquin County (Stockton).

To contact the reporters on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net; Alison Vekshin in San Francisco at avekshin@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Stephen Merelman at smerelman@bloomberg.net

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