KEY PENSION QUESTION UNANSWERED IN STOCKTON RULING

CALIFORNIA FOCUS
FOR RELEASE: TUESDAY, DECEMBER 2, 2014, OR THEREAFTER

BY THOMAS D. ELIAS

    “KEY PENSION QUESTION UNANSWERED IN STOCKTON RULING”

          Politicians and public employees drawing pensions had high hopes they would get clarity on a key question from the federal bankruptcy judge presiding over the city of Stockton’s ongoing  attempt to regain its financial health.

          But it now appears that unique inland port city will emerge from more than two years of bankruptcy without any answers to the question of whether public employees deserve more long-term security than people working for private companies.

          This question became a root, unspoken, underlying issue as tax revenues dropped during the Great Recession and cities like Stockton, San Bernardino and others searched for ways to balance their precarious budgets.

    For many decades, the general presumption was that because private sector jobs generally paid better than government work, public employees deserved somewhat more long-term financial stability than others.

          But as raises, pensions and job security began to fall or (as with defined-benefit pensions) all but disappear from private industry, the pay and benefits of public workers looked better and better. Those benefits were locked in via either union contracts or civil service standards.

          Many voters eventually saw themselves making less and earning lower pensions than public employees who nominally worked for them. This led to election of tough-on-public-employee city council members in many locales.

          Soon a new question arose: Are contracts with public employees more sacred than those with others who deal with government, like the private investors who buy and hold city bonds?

          The early autumn ruling that upheld Stockton’s plan to emerge from bankruptcy by cutting salaries of many current workers and eliminating some jobs did not touch the vested pensions of past and present employees, from police to street cleaners and clerks. That rankled bond holders who had waited years for payments and now will see them stretched out over many more years than originally called for.

          The judge, Sacramento-based Christopher Klein, said in a preliminary ruling that pension contracts are no more sacred than others. But his final ruling was based on the reality that if public employees and retirees get completely equal standing in bankruptcies, they will far outnumber other creditors and could vote down any settlement that doesn’t favor them.

          So Klein did answer one of the key questions in municipal bankruptcies, saying the workers are equal to others owed money by a city or county. That led him to leave worker pensions intact, for fear Stockton would be doomed to stay in bankruptcy many years longer if he okayed a cut.

          But the other question central to many voters who are not public employees was never addressed: Should public employees ever get better pay and benefits than private sector workers who have fewer contractual or civil service protections?

          San Bernardino voters gave one answer in the fall election, rejecting a ballot measure that would have seen future police and Fire Department pay and benefits set by negotiations between city officials and unions. That would have been a big change from the current system basing salaries on the average of 10 other cities with populations similar to San Bernardino’s 214,000.

          That vote may have been a statement that voters in the troubled city believe public employee pay and benefits are not too generous.

          Meanwhile, another federal bankruptcy judge ruling on the city of Detroit’s financial plan has just held that it’s OK to cut public employee pensions there.

          All of which means Stockton’s path forward may now be set, but it’s still unclear whether that will form any meaningful precedent or pattern for other cities to follow as they try to cope with the generous promises they made while recruiting public employees in better times.

-30-

     Email Thomas Elias at tdelias@aol.com. His book, "The Burzynski Breakthrough: The Most Promising Cancer Treatment and the Government’s Campaign to Squelch It," is now available in a soft cover fourth edition. For more Elias columns, go to www.californiafocus.net