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John Hansen

Within approximately one year of each other, the cities of Stockton, Calif., in June 2012, and Detroit, Mich., in July 2013, commenced municipal bankruptcy cases under Chapter 9 of the federal Bankruptcy Code. The two cities were the largest U.S, cities to ever file Chapter 9 bankruptcy cases. In each case a major financial obligation was the city’s unfunded pensions.

The two cities, however, took opposite approaches to their pension obligations. In the Detroit case, the city proposed and confirmed a plan of adjustment that reduced pensions; whereas in the Stockton case, the city proposed and confirmed a plan of reorganization that did not impair the pension rights of its employees or retirees, but achieved savings by other means. The difference appears to have stemmed at least in part from the fact that Detroit’s elected city officials were replaced by a manager appointed by the governor. By contrast, control over the Stockton case remained in the hands of the elected mayor and city council.

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