SACRAMENTOÂ â?? When it comes to pension reform, Iâ??ve long been a pessimist given the realities in the Capitol and courts. AÂ federal judgeâ??s decisionÂ in part two of the Stockton bankruptcy caseÂ on Thursday, approving an exit plan that doesnâ??t chip away at the cityâ??s looming pension debt, at first seems to warrant even more negativism.
But itâ??s probably not as bad as it seems for those who want these municipal debts tamed so that public services can be restored and residents arenâ??t stuck with escalating tax burdens. Sure, Stockton officials chose not to reduce pensions, but other cities are free to address them in the future, thanks to the first part of the decision the judge issued early this month.
The fundamental problem hasnâ??t changed. Even as liabilities have soared, state politicians have supported only superficial reforms. Courts have upheld the â??California Rule,â?ť which means pensions cannot be reduced for current employees even on a go-forward basis. That leaves few options for hard-pressed cities.
Reformers had pinned their hopes on municipal bankruptcy â?? not because they want cities to go belly up, but because it would provide a day of reckoning. If pensions aren’t safe in bankruptcy, that would give public-sector unions an incentive to support reforms to help keep their localities out of bankruptcy court.
OnÂ Oct. 1, optimists were cheering.Â In a verbal ruling, Judge Christopher Klein ruled pensions could are fair game in a bankruptcy, despite the California Public Employees’ Retirement Systemsâ?? insistence to the contrary. â??Impairing contractual obligations â?? thatâ??s what bankruptcy is all about,â?ť the judge said.
But this week, in a decision cheered by CalPERS and public-sector unions, Klein accepted the cityâ??s plan, which leaves pensions intact and balances the cityâ??s debts on the back of creditors. The real loser was Franklin Templeton, which will only be repaid 1 percent on theÂ $36 million unsecured portion of its loan.
The judge was satisfied the cityâ??s plan would restore it to fiscal health, despite reports showing StocktonÂ could face budget problems again in four yearsÂ given the trajectory of pension debt. He thought it was the best the city could do, especially after a recent tax increase. Indeed, cities increasingly are turning to taxes to deal with their pension-related problems.
â??There is absolutely no doubt in my mind the pension obligations are driving the volume and amounts of tax-increase proposals and even many of the bond proposals,â?ť said Jon Coupal, president of the anti-tax-increasingÂ Howard Jarvis Taxpayers AssociationÂ in Sacramento. More local tax increases may be a side effect of Kleinâ??s ruling.
But the public-employee union officials and others who viewedÂ Thursdayâ??sÂ decision as a sign that pensions always are sacrosanct are kidding themselves. â??Government pensions in California remain untouchable, at least for now â?¦,â?ťÂ concluded the Sacramento Bee.
In reality, theÂ Oct. 1Â decision still is in force â?? and could still change the stateâ??s pension landscape. EvenÂ CalPERS officialsÂ recognized that fact after the verdict. Based on his earlier ruling, itâ??s clear pensions are touchable. That has statewide importance even if Stockton chose not to take advantage of the opportunity offered to it.
â??If you have a city thatâ??s not as dumb as the Stockton City Council and actually is looking out for its taxpayers, they can take advantage of the judgeâ??s willingness to impair PERS,â?ť said former Stockton Assemblyman Dean Andal.
Reacting to the cityâ??s â??yee-haw reactionâ?ť to the verdict,Â San Joaquin County Taxpayers AssociationÂ President Dave Renison wondered what the city got out of a process thatÂ cost $41 million: â??Itâ??s a shame to waste a perfectly good bankruptcy.â?ť Californians in other troubled cities may have gotten something out of the process, though.
â??Itâ??s a race to see which city will be the first to take a federal bankruptcy judge seriously,â?ť saidÂ Jack Dean, vice president of California Pension Reform. In other words, local finances might get bad enough that someday officials in some California city might be willing to challenge CalPERS. That leaves at least some reason to be optimistic.
Steven Greenhut is the California columnist for U-T San Diego. Write to him atÂ firstname.lastname@example.org