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Stockton bankruptcy: Retirees sue to stop cuts to health benefits

July 12, 2012 |  9:36 am

Photos: California cities in bankruptcy

A group of Stockton retirees is seeking a restraining order against the bankrupt city's efforts to cut their health benefits, part of the city's "pendency plan" aimed at keeping it solvent while it seeks protections from creditors.

The city informed retirees by letter they must pay their premiums by July 30 or "medical coverage will be canceled retroactive to July 1."

Promises of lifelong health benefits have been blamed in part for Stockton's failure, which was also brought on by the housing bust, unemployment and borrowing for downtown development that did not bring expected results.

PHOTOS: California cities in bankruptcy

Dwane Milnes, who was Stockton's city manager from 1991 to 2001, has been widely criticized for giving retirees full retirement healthcare in return for agreements from unions not to seek raises. The unfunded liability for those benefits is $417 million.

Milnes now represents the retirees in bankruptcy-related negotiations.

"It is not unfair to make changes in the retirement plan," Milnes said. "The world changes and when the world changes you have to adapt. But the question is, how do you change it in a way that is respectful of those most in need?"

Plaintiff Alfred Seibel, 58, a retired parks worker, said he can't afford the premiums and can't afford to lose coverage.

With the city's cuts, Seibel's health insurance costs would be $1,126.66 per month, or about 51% of his net income.

"I am already taking generic meds for cholesterol and triglycerides against my doctor's advice, I can't afford the $70 co-pay. My wife cries all the time. She don't understand how when they promise you all this stuff, then they [can] just take it away," he said in court documents.

A retired parks caretaker who worked for the city for 31 years, Seibel also suffers from a work-related herniated disc and enlarged lymph nodes that doctors say are from chemicals he used on the job.

The suit seeks class-action status covering all retirees, but Milnes said he and other managers with higher incomes would be willing to give up their benefits.

"The ones we're talking about are the ones who worked for us for years. For crying out loud, we know them, we know their families. We know about their breast cancer, their husband's diabetes," he said.

The budget the Stockton City Council adopted slashed contributions to current employee and retiree health benefits and eliminated benefits for employees with fewer than 10 years of city service. It eliminates city-funded medical benefits for retirees by July 2013.

There are about 2,400 city retirees, about 1,000 of whom receive health benefits. Two-thirds of the city retirees do not meet poverty requirements for California's low-income healthcare program but cannot afford private insurance, Milnes said. Those who are over 65 can get Medicare, but they must pay for medications and doctor's office visits.

Stockton Vice Mayor Kathy Miller said the lawsuit was not unexpected.

"All I can say is that there is a group of retirees who think it's more important for the taxpayers to pay 100% of their retirement than to keep police officers on the street," she said. "They know the situation. They know 80% of our discretionary income is for public safety. There is no way we can close the budget gap without these cuts. But they think they should come first."

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— Diana Marcum

Photo: Downtown Stockton. Credit: Peter DaSilva / European Pressphoto Agency

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