Governments, like vampires, are thought to
technically live forever, but in these times, you wonder. Cities that have
incorporated, could unincorporated. The county could then take over the
government functions. I expect to see more of this. See the California update
below:
California Pension Reductions Ok
California public workers may be at
risk of losing promised pensions by Melody Petersen, LA Times, 3/17/15
As millions of
private employees lost their pension benefits in recent years, government
workers rested easy, believing that their promised retirements couldn't be
touched.
Now the safety
of a government pension in California may be fading fast.
Feeling the
heat is the state's huge public pension fund, the California Public Employees'
Retirement System, known as CalPERS.
The fund spent
millions of dollars to defend itself and public employee pensions in the
bankruptcy cases of two California cities — only to lose the legal protections
that it had spent years building through legislation.
The agency's
most significant setback came in Stockton's bankruptcy case. The judge approved
the city's recovery plan, including maintaining employees' pensions, but ruled
that Stockton could have legally chosen to cut workers' retirements.
In his written opinion, U.S.
Bankruptcy Court Judge Christopher M. Klein blasted CalPERS as "a
bully" for weighing in on the proceeding to insist — wrongly — that the
city had no choice but to pay workers their promised pensions.
Karol
Denniston, a public finance lawyer at Squire Patton Boggs, said Klein's ruling
was "critical for every municipality in California."
"Next time
we see a Chapter 9 bankruptcy filing," she said, "pensions will be up
for negotiation just like every other creditor."
The
skyrocketing bill for pensions is a problem for cities across the state.
Californians now owe nearly $200 billion for pensions promised to state and
local government workers, according to an analysis by Adam Tatum, research
director at California Common Sense, a nonprofit think tank.
Rising pension
costs are eating up money needed for things such as fire trucks and street
repairs, Tatum said.
As the focus
now shifts 400 miles south — to the city of San Bernardino's bankruptcy case —
the pension fund faces a new legal challenge from two companies owed $50
million. The companies say it's illegal for the city to continue paying CalPERS
to fund workers' pensions while they get nothing. "This is
significant," Tatum said. "It has put a chink in CalPERS'
armor."
San Bernardino
could be the first city in California to consider cutting worker pensions in a
bankruptcy.
Before Klein's
ruling, San Bernardino officials repeatedly said they planned to keep paying
CalPERS for worker pensions. They said they feared that employees would leave
for other government jobs if they moved them to a less expensive retirement
option.
The city
manager confirmed these plans to the Los Angeles Times in February. But in an
interview, San Bernardino City Atty. Gary Saenz said Klein's opinion was
significant.
The city is now drafting a plan for
paying its creditors, he said. Although city officials put "a high
value" on continuing to pay CalPERS, Saenz said, the issue "is still
up in the air."
In an email,
Brad Pacheco, a CalPERS spokesman, said the fund disagrees with Klein's ruling,
but hasn't decided whether it will appeal. Pacheco added that CalPERS continues
to believe that the ruling has "little significance" because Klein
ultimately approved Stockton's bankruptcy plan, even though it included
continued payments to CalPERS to support full workers' pensions. "We are
not ashamed of our actions to protect the pension promises made to California's
public servants," Pacheco said. "We disagree that CalPERS 'bullied'
anyone."
Part of the
problem is that many cities have promised workers’ pensions that are more
generous than those still offered in the private sector. Many government
workers retire at 50 or 55 on lifelong payments that can nearly match their
salaries if they were longtime employees.
Increasing
payments to CalPERS was one reason that Stockton and San Bernardino were forced
to file for bankruptcy. Moody's, the Wall Street rating firm, warned last fall
that the two cities will continue to face financial stress after bankruptcy if
they don't reduce workers' pensions.
Stockton now
pays CalPERS an amount equal to 46% of the salaries of its police and fire
staff to cover their future pensions — a payment that will rise to nearly 60%
of payroll in five years.
Dave Low,
chairman of Californians for Retirement Security, a coalition of 24 public
unions, said workers are willing to discuss changes to their benefits during
contract negotiations. He noted that Stockton's workers had agreed to give up
the free healthcare they had been promised in retirement — a benefit worth more
than $500 million. "Unions have no interest in seeing their cities go
bankrupt," Low said.
CalPERS' efforts to protect itself
and workers' retirements began decades ago when it pushed through two state
laws with help from the politically powerful unions.
The first law
said that a city's contract with CalPERS could not be canceled in bankruptcy. The
second allowed CalPERS to place a costly lien on a city's property — in
essence, a new and far more expensive bill for pensions — if the city left CalPERS
and provided retirement benefits through a different fund. The cost of the
threatened lien was so steep — in Stockton, CalPERS demanded $1.6 billion —
that no city in bankruptcy has left the fund. But Klein ruled that federal
bankruptcy law trumped the two state laws. He called the lien "a toothless
tiger."
The two
companies challenging San Bernardino's payments to CalPERS are using a
different legal tactic. Like many cities, San Bernardino borrowed money through
bonds to pay CalPERS for pensions. The two companies — Luxembourg-based Erste
Europaische Pfandbrief und Kommunalkreditbank and Ambac Assurance Corp. — are
owed more than $50 million for those bonds.
The companies
argue that since CalPERS received the borrowed $50 million, the debt they hold
isn't legally different from the additional amounts that the city owes to
CalPERS and continues to pay. Both CalPERS and the city say the companies'
claims are baseless. The city has asked the court to dismiss the complaint.
Source: LA Times, 3/17/15
Comments
Local government insolvency is caused by federal
agency overreach, ill-conceived federal grants for economic development that
don’t work out, “big spender” Mayors or County Commission Chairmen and “groupthink”
by City Council Reps and County Commission Reps”.
Bankruptcy was caused by the EPA in Jefferson
County Alabama when the EPA insisted on a “over-the-top” redo of their water
and sewer system and the banksters hornswoggled the county into flipping their
fixed-rate bonds to variable-rate bonds just before interest rates jumped.
Stockton’s bankruptcy was caused by the
failure of an over-the-top economic development project with ill-conceived
federal grants and lots of local debt.
The development was a flop and didn’t produce added tax revenue.
San
Bernardino didn’t have enough cash to make loan payments on a $50 million debt.
Norb Leahy, Dunwoody GA Tea Party Leader
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