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