Two stories yesterday thrust pension reform in the front of the political news. In Michigan, a judge declared that Detroit could consider bankruptcy to deal with its debt crisis and that public pension obligations can be treated like any other contract under bankruptcy law. In Illinois, the state legislature passed a public pension reform that supporters say will save $160 billion and fund the retirement system over 30 years by reducing benefits for workers and retirees.
Both actions await the inevitable lawsuits promised by the public employee unions that don’t want to see members’ benefits reduced. Both stories have meaning to California cities that are struggling with fiscal problems that are wrapped around pension and health care liabilities.
Let’s state here that no one wants to see pensioners lose income they expected. That goes for public workers as well as citizens on Social Security who could see benefits cut in the not-too-distant future if the current gap between available revenue and payments due is not altered.
Saying that, something has to be done to avert the city bankruptcies and everything is on the table.
The judge making the Detroit bankruptcy decision clearly stated that, “it has long been understood that bankruptcy law entails the impairment of contracts.” That argument is at issue in the San Bernardino bankruptcy debate and could arise again in Stockton. Other California cities facing difficult fiscal conditions due to heavy pension burdens will take note.
The pension decision in Detroit will now become front and center as city officials sit down with union leaders to discuss resolutions to budget problems. The decision also gives a boost to San Jose Mayor Chuck Reed’s effort to find resolution on the pension issues that are threatening the budget in his city and cities across the state.
Reed’s proposed ballot initiative would give local governments more power to negotiate reductions in pension benefits. He has reached out to unions in an effort to find a solution to the pension crisis and avoid a war over the initiative. The unions responded by rebuffing Reed’s overture unless he drops his initiative plan.
In light of the decision coming out of Detroit on bankruptcy and public pensions, perhaps public employee unions should reconsider and accept Reed’s invitation to at least attempt to find common ground.
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