Today, a bankruptcy judge gave us a glimpse of the future in the public pension situation. It will not be pretty.
In the first ruling of its kind, a bankruptcy judge held the city of Vallejo, Calif. has the authority to void its existing union contracts in its effort to reorganize, holding public workers do not enjoy the same protections Congress gave union workers at private companies.
Municipal bankruptcy is so rare that no judge had yet ruled on whether Congressional reforms in the 1990s that required companies to provide worker protections before attempting to dissolve union contracts also applied to public workers’ union contracts
U.S. Bankruptcy Judge Michael McManus held March 13 that when Congress enacted 11 U.S.C. sec. 1113 to limit companies from outright rejection of union contracts it limited it to Chapter 11 bankruptcies. By failing to extend the limits to Chapter 9, which covers municipal bankruptcy, McManus said cities have broader latitude to break existing union pacts, In re City of Vallejo, 08-26813-A-9 (E. Dist. Calif.)
All I can say is “Holy Shit!”
The public employee unions will be racing to have Congress change the law but it may be too late.
California is next.
Tags: municipal bankruptcy, unions
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We need to re-examine our pension system. We seem to have people retiring at younger ages while life expectancy keeps rising. I had a high school friend chortle that he could retire at full salary after 30 years with his company. He started with them at age 20 and now he is nearing 50. If he lives until 80, a straight line calculation with no time discount tells us he was worth twice his salary. I can’t imagine that was the case.
It will be interesting to see what happens.