OPINION:
There’s a silver lining in the bankruptcy filing of Stockton, Calif., and it could point the way to relief for hundreds of other cities. A federal bankruptcy judge ruled last week that the city could renegotiate the platinum-plated pension deals that sent the San Joaquin Valley city of 300,000 to the poorhouse.
Judge Christopher M. Klein in Sacramento declared that the public-sector pension program, known as Calpers, would have to get in line with every other creditor with a claim on the bankrupt city. Just because it’s a public worker union conveys no privilege.
The 1990s were good to Stockton, and the city fathers unwisely decided it would be a wise idea to “revitalize” the city with a spending spree. Money was spent for a new courthouse, housing, a marina on the San Joaquin River and publicly funded art.
Then California’s housing market tanked, taking property-tax revenue with it. The city was left under a mountain of debt, the largest share from municipal worker pensions, $29 million a year owed in payments to public-sector pensions.
Calpers, the public-sector pension system, argued that it is exempt from federal bankruptcy law because it’s effectively a part of the state government, and therefore its pensioners must cut to the front of the line, ahead of all other creditors whenever a city files for bankruptcy.
Not so fast, said Franklin Templeton Investments, which made a $36 million loan to the City of Stockton. The city’s restructuring plan allocated just $4 million out of what it owed to Franklin Templeton, while Calpers would get every cent due. Franklin Templeton sued, and Judge Klein agreed that this was not a fair deal. Stockton’s city fathers (and mothers) may not have the courage to restructure the overpriced pensions. City officials fret that employees might flee their plush digs if pensions are cut. This is unlikely, given that any cuts will be incremental, and not large enough to tempt well-compensated city employees to leave town. In this economy, where else can they get good jobs?
Underfunded pensions are a widespread problem. The bankrupt cities of Stockton, Detroit and San Bernardino are no more than canaries in this coal mine. Judge Klein’s decision warns there’s a way out of the hole California has dug for itself, and it’s up to the politicians to find it.
Lavish pension packages are an easy promise for politicians to make, who naturally expect election-day gratitude from municipal employees. Creative accounting underestimates the burden, and, by the time anyone notices, they can’t afford the largesse, and the politicians are long gone, enjoying their own pensions. California taxpayers may not have to pay for promises that never should have been made in the first place.
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