Saturday, March 17, 2012

Untouchable City Pensions May Be Tested in California for reductions - And may be coming to Chicago....


When the city manager of troubled Stockton, Calif., had to tell city council members why it was on track to become the biggest American city yet to go bankrupt, it took hours to get through the list.

There was the free health care for retirees, the unpaid parking tickets, the revenue bonds without enough revenue to pay them. On it went, a grim drumbeat of practically every fiscal malady imaginable, except an obvious one: municipal pensions. Stockton is spending some $30 million a year to pay for them, but it has less than 70 cents set aside for every dollar of benefits its workers expect.

Some public pension experts think they know why pensions were not on the city manager’s list. They see the hidden hand of California’s giant state pension system, known as Calpers, which administers hundreds of billions of dollars in retirement obligations for municipalities across the state.

Calpers does not want cities like Stockton going back on their promises, and it argues that the state Constitution bars any reduction in pensions — and not just for people who have already retired. State law also forbids cuts in the pensions that today’s public workers expect to earn in the future, Calpers says, even in cases of severe fiscal distress. Workers at companies have no comparable protection.

Stockton is in the midst of a mediation process with its creditors that will determine by the end of June whether it will file for Chapter 9 bankruptcy, which would allow the city to negotiate reductions in its debt in court.

For Calpers, the prospect of a California city in Federal Bankruptcy Court portends a potential test of the constitutional mandate that federal law trumps state laws — in particular, the state laws that protect public workers’ pensions in California. Such a challenge could blow a hole in what experts consider the most airtight pension protections anywhere.

“Obviously, what Calpers wants is that it doesn’t come up in the process, which I think is ridiculous,” said David A. Skeel Jr., a law professor at the University of Pennsylvania who writes frequently on bankruptcy. “My view is that even the California Constitution is subsidiary to federal bankruptcy law.”

As the United States population ages and more and more public workers qualify for retirement, the cost of their pensions is growing fast, turning into a major drag on many local governments’ finances. The pension contributions that cities must make every year are rising, but their revenue, which often depends on property taxes, is not keeping up. Taxed-out residents, many of whom have lost their own pensions in the private sector, are unwilling to pay more. In tax-averse California in particular, where every tax increase must be put to a vote, officials are running out of options and some are considering bankruptcy.

Bankruptcy in America is a collective process, where creditors of a distressed company or municipality come together under court oversight and negotiate a plan to share the losses equitably, for the sake of the greater good. Some creditors may stand more toward the front of the line and others at the back, but there isn’t generally one big creditor that gets paid in full without having to get in line at all.

Yet that’s what Calpers appears to be doing.

“They will probably say it’s a statutory right and it can’t be changed by a bankruptcy court,” said James E. Spiotto, a Chapter 9 specialist with the firm of Chapman & Cutler. “I think it’s still subject to some question.”

A spokeswoman for Stockton’s city manager, Connie Cochran, said she could not discuss the city’s dealings with Calpers, citing the confidential mediation process.

When a company with a pension plan goes bankrupt in Chapter 11, it typically stops making most of its required pension contributions, just as it can stop paying many other bills. Some companies, like Northwest Airlines, even declare bankruptcy the day before a pension contribution is due, to save the cash.

Chapter 11 also permits companies to shed their pension obligations completely, if they can convince the bankruptcy judge that’s the only way they can restructure. The federal government, which insures traditional company pensions, then takes over the defunct plan and pays retirees their benefits, up to statutory limits.

There is no such backstop for state or municipal pensions. But cities, until recently, have managed to avoid bankruptcy, so there is almost no precedent for how public pensions will fare in Chapter 9.

Now that is starting to change.

Prichard, Ala., tried to file for Chapter 9 bankruptcy in 2009, after its pension fund ran out of money, but its case was thrown out by the judge, who cited a rule that Alabama cities must have bonds outstanding to qualify for Chapter 9. Prichard had no bonds at the time, just a big debt to its retirees. The city went for nearly two years without paying them their pensions, then reached an out-of-court settlement that gave them about one-third, on average, of what they had earned.

Central Falls, R.I., declared bankruptcy in 2011, after its pension fund for police officers and firefighters nearly ran out of money. The state withheld aid, and passed a law forbidding any effort to revive the pension plan by issuing bonds. Central Falls had little choice but to negotiate sharp cuts with the retirees.

In California, the only precedent is in the city of Vallejo, which declared bankruptcy in 2008. Unlike Prichard and Central Falls, which had their own pension plans, Vallejo is part of a state-run system. It kept making all of its contributions to Calpers throughout its three-year bankruptcy.

“We never shortchanged Calpers,” said Robert V. Stout, Vallejo’s finance director at the time.

Mr. Stout said he had expected to renegotiate the city’s retirement plans in bankruptcy, since everything else was on the table. At the time, Vallejo was in a fiscal tailspin with the mortgage debacle, which hit cities in California unusually hard.

But Calpers drew a line in the sand, warning Mr. Stout and his lawyers that in California, public pensions can be increased but never decreased, not just for retirees, but also for workers at midcareer.

What if the city is bankrupt and cannot afford it?

“They made it quite clear that they take that law very seriously,” Mr. Stout said. Calpers also warned that if the bankruptcy judge ruled that the state pension laws stopped at the federal courthouse door, Calpers would appeal, and make Vallejo pay its legal bills.

“We interpreted that as, ‘If we try, they’ll fight us through the courts forever,’ ” Mr. Stout said. He and Vallejo’s lawyers decided the city couldn’t afford it.

The city ended up cutting services sharply, gutting its retiree health plan, adding a 1 percent sales tax and cutting payments on its bonds. But its police officers and firefighters still qualify for full retirement at 50, and other city workers at 55.

Since Vallejo made no effort to cut pensions in bankruptcy, the legal issues remain untested, said Mr. Spiotto, the Chapter 9 lawyer.

“It’s something that’s in the process of being worked out, not only in California, but in every state,” he said. “It’s a global issue.”

A Calpers spokeswoman responded to questions by providing a 20-page position paper on the laws that protect public pensions in California. The report did not mention bankruptcy but acknowledged that some California cities were struggling.

“It will be vitally important for all interested parties to heed the legal rules protecting the vested rights of Calpers’s members,” the paper said. Challenges “may lead only to additional litigation and administrative costs.”

Critics in academic and legal circles say they believe Calpers wants to keep municipalities in its system because it needs to keep their contributions flowing in without interruption to cover the payouts it makes each month to retirees. Gov. Jerry Brown called that situation “a Ponzi scheme” last December, when he proposed a plan to lower public pension costs gradually, by offering smaller pensions to the workers that cities will hire in the future. The governor’s plan was strongly opposed by public employees’ unions, which have a strong voice in Calpers, and his fellow Democrats in the state Legislature have let it languish.

After Vallejo’s bankruptcy, Calpers’s board passed another rule that any municipality wanting to withdraw from its system would have to first pay off its shortfall, calculated in a way that makes the payment two to three times as big as in the past.

Stockton’s city manager, Robert Deis, is focusing on cutting retiree health benefits instead of pensions, because he said the retiree health plan was completely unfunded — as opposed to its pension being 70 percent funded — and the cost was growing at a faster rate.

Changing the pensions would also be complicated by the fact that some of Stockton’s retirees get both pensions and Social Security, and others get only their city pensions.

Still, the city’s annual contributions to Calpers for pensions, currently $30 million, are greater than its retiree health costs, $9 million this year. Even before the collapse of 2008, Stockton was struggling with its pension contributions. In 2007, it issued bonds to raise the cash it needed to send to Calpers. But then Calpers’s investments took a pounding in 2008, leaving Stockton with a new pension shortfall to cover — plus about $7 million of principal and interest to pay on the bonds every year.

Bankruptcy lawyers said that if such issues were not addressed in Stockton, they were likely to come up elsewhere soon.

“There are a bunch of cities in bad shape, and pensions are part of the problem,” said Mr. Skeel. “If you have a string of Chapter 9’s, I don’t think every one of them is going to say, ‘This enormous obligation can’t be touched.’ I think one of them is going to take the plunge.”

39 comments:

Anonymous said...

Willow Springs Police Pension fund is down to 20% funded who stole all the money????

Anonymous said...

They try to diminish the amount of my promised pension before any entitlement programs get cut and I promise they'll see Hell unlike ever before.

There's something seriously fucked-up when they can keep taking from legit, employed productive members of society while the do-nothing, baby-making, drug-selling pieces of shit continue to receive subsidized housing, free medical/dental and monthly stipends because they're too dumb to read or write.

Don't forget the illegal beaners who migrate to the good, ol' U.S. of A in droves to reap the benefits of this and other sanctuary cities.

The first Republican presidential candidate to publicly say he'll cut welfare, Section 8 and other benefits to the homegrown leeches and ALL types of aide to any motherfucker not born here (and sorry, no anchor babies covered either) gets my vote.

The "system" is almost completely broken. Maybe the Mayans have it right. Let's see who running for the White House has the courage to call a spade a "spade" and cut these fuckers off once and for all. Then have the balls to follow through when elected, having the military in place to mow down the jagoffs who'll riot when their benefits are cut off completely.

Novemeber 2012 is right around the corner. What say you, Romney, Paul, Gingrich and Santorum?

God bless the USA.

Anonymous said...

dsasdaa
dsasda

Anonymous said...

"The first Republican presidential candidate to publicly say he'll cut welfare, Section 8 and other benefits to the homegrown leeches and ALL types of aide to any motherfucker not born here (and sorry, no anchor babies covered either) gets my vote."


Too bad that's never going to happen. Republicans love cheap illegal labor.

Arguing over republicans and democrats is essentially arguing "My corporate sponsored candidate is better than your corporate sponsored candidate"

Anonymous said...

Ron Paul is the solution, do some research, he is the true conservative candidate that will bring Change!

Rick Santorum is second to Ron Paul, Romney is a liberal RINO Obama II, Newt Gingrich is a has been who is being financed by billionaire Sheldon Adelson to keep Santorum from eclipsing Romney.

George Soros stated there is no difference between Romney and Obama!

Ron Paul 2012!

Anonymous said...

"but it has less than 70 cents set aside for every dollar of benefits its workers expect"

So they are 70% funded. That's pretty well funded in this day and age. The state of Illinois' pensions are funded around 40%. The city is pissed because they have to use the money to continue funding the pensions properly.

NUTRIA said...

WHAT HE SAID!

Mark12A said...

I think this is where the shit is going to hit the fan. Either they cut welfare benefits and the savages will start beating their drums and rioting, or the governments will continue to cut pensions and services and the people who are paying the bills will start beating their drums and rioting.

Anonymous said...

hey you voted Daley democrat pro union. now take your medicine.

Anonymous said...

Willow Springs police pensions...?

Did the village make all its contributions each and every year?

I bet many contribution years were skipped or short changed. Did the employees have pension contributions auto-deducted from each and every paycheck?

I Voted For Obama said...

Obama has a solution to all of this but the Republicans keep blocking him.

The King of All Crackers said...

I warned you in earlier comments on this blog that there maybe pension reductions in the future. Remember the poor Wisconsin Steelworkers had their pensions cut 75%. I would only count on getting what you paid in plus any growth in the pension plan. Also public pensions are not covered under ERISA. ERISA was set up by the federal government to protect pensions up to what was paid in by the pensioner. This was because assholes like Blago and Daley along with others didn't make the required contributions to fund pensions and played with the books. Blame the Democratic Party and some Republicans that went along with this stupidity.

Anonymous said...

Got that right. Two headed snake. Left right paradigm is broken.

Anonymous said...

Will Irish Welfare finally be coming to a close???

Anonymous said...

Hopefully at contract time, this will be the number 1 item.

Suburban Taxpayer said...

Anonymous said...
Willow Springs Police Pension fund is down to 20% funded who stole all the money????

March 17, 2012 1:45 AM
______________________________
It may not be a matter of who stole it, it could be a matter of how did they mismanage it.

Elected officials are not that smart and most rely on consultants when it comes to pension funds.

I have seen firsthand that some of these "pension consultants" have given bad advice and the results can damage the strength of your pensions.

The actuary gave us numbers that were way out-of-whack with reality when it came to return-on-investment.

A conservative ROI would be 5-6% (and believe me - that's a pretty good return in today's markets). This guy had it at 8.5%. When you have that much as a return, the municipality looks at that and says -oh, our contribution this year is $1,000,000 but if the investments come short and you are not watching this every year, all of a sudden the pension has a huge shortfall and there is no way to get it back up to fully funded.

THIS IS HAPPENING ALL OVER because no one is watching this. Better keep a better eye on it and have FOP watching too.

As to those screaming about promised pensions, the money is not there and don't be surprised if the pensions are cut. You'll concede if the options are - take a 30% cut or take NOTHING.

It's happening in other places don't be so naive that Illinois is going to honor its pensions (they promised you the world - do you think they could really deliver??)

Look at GM. Same thing. All municipal unions looked at private sector places like GM and said - HEY WE WANT what they are getting. Well, guess what? They bankrupted GM and they had to get bailed out. NO ONE can bail out ALL the municipalities. They go bankrupt and you start from square one in negotiating what you will get.

One post here says to cut off all the welfare people. I agree. If they get cut - they will riot. IF you get cut- will you really riot?

I doubt it -and so do the politicians.

We are headed for rough times because the Haves and the Have Nots want more and the taxpayers have become the "Used to Haves".

Can't get money from those who don't have any more to give so start making alternate plans.

KMA said...

Allowing Stockton or other cities to file Ch.9 will have severe repercussions in the Municipal Bond market across the USA. These bonds will no longer be deemed a safe investment and will cause severe problems for retirement plans that we all participate in. Hold on to your hats.

Anonymous said...

Remember: this Tuesday is very important to all in law enforcement.
Our corporate-owned mainstream media has showed you nothing about the incredible support Ron Paul has out there. Why is Ron Paul important?
Fact: They have completely blacked him out. The last reporter covering his campaign has now been
removed. A candidate for President who supports our gun rights, our individual freedoms, privacy, and wants to cut welfare? ‘They’ can’t have that.
Fact: Judge Napolitano was removed from Fox news because he supported RP and was exposing the truth.
Fact: Hundreds of military veterans for RP marched in Washington.
Fact: Ron Paul leads all candidates by far in donations from service members.
Fact: Thousands of young people are gathering in universities all over this nation to support him. “They” are hoping you won’t pay attention. to all this.
Fact: Ron Paul was the only candidate who spoke against the NDAA and the Patriot Act. “They’ can’t have that.
Fact: Election votes in paper ballot form for RP have been torn up and thrown out.
Fact: There are hundreds of videos on YouTube, covering RP uploaded by people at election polls all over the nation about election fraud. “They” are hoping you won’t pay attention to all this.
Fact: The crowd numbers at Ron Paul’s campaign stops have been staggering. “They “are hoping you won’t pay attention to all this-therefore it’s not covered on the news. The filmed evidence is on YouTube!
Fact: The United Nations has now gotten involved with our voting process! -- citing violations of human rights issues, along with A.G. Holder in the push to stop laws that require voters have a photo ID. We must have a photo ID for just about everything,
however, to change the laws in this country and vote for President-no ID is necessary. Mass voter fraud - they will be busing in the illegals to ensure their votes.

Past CNN and Drudge report internet polls had Ron Paul leading. So what happened?
The corporations are doing all they can to steal this election, and just make him go away.

Can you see what candidate the mainstream media is pushing at us? The one who can be/is
bought by big corporations. The business man.

Ron Paul vowed to eliminate the IRS, and audit the Federal Reserve.
He wants to bring ALL our troops home. ‘The Powers that Be’ just cannot have that happen.

I am so sick and tired of hearing about Dream Acts, expanding of “Sanctuary” cities, and
more and more entitlements. Now here comes cutting pensions and benefits.
When does it stop?


This man is our only hope.
Tuesday: RON PAUL 2012.

Watch these:
http://youtu.be/4qABb3J1YYc
http://youtu.be/BoP0ItndrAk

Retired CPD.

Anonymous said...

Welfare

Don’t count on republicans cutting welfare. Who do you thing owns the liquor stores,Or currency exchanges?

Anonymous said...

The first Republican presidential candidate to publicly say he'll cut welfare, Section 8 and other benefits to the homegrown leeches and ALL types of aide to any motherfucker not born here (and sorry, no anchor babies covered either) gets my vote.

Amen, ANYONE who votes otherwise is giving the Domocommies further license to steal your savings, pension, property values, etc. YOU will be the ones left high and dry by these fuckin THIEFS if you don't act now and quit buying into this Liberal Bullshit. Don't cry when you have NO pension, NO savings, and NO paid-for home to live in, when you get a little older 10-20 yrs from now, you DID IT TO YOURSELVES BY VOTING DEMOCRAT.

Anonymous said...

Anonymous said...
Ron Paul is the solution, do some research, he is the true conservative candidate that will bring Change!

Rick Santorum is second to Ron Paul, Romney is a liberal RINO Obama II, Newt Gingrich is a has been who is being financed by billionaire Sheldon Adelson to keep Santorum from eclipsing Romney.

George Soros stated there is no difference between Romney and Obama!

Ron Paul 2012!

March 17, 2012 4:10 AM

# 1 - RON PAUL, HAS no CHANCE OF WINNING, - ZERO. He has many good and Constitutional Ideas, but he is again goin nowhere, plus, he's TOO Old. The DEMOCOMMIES would make mince-meat out of him, if he was a serious candidate to be feared, but they leave him alone, because he's not even the slightest Threat.

#2- If George Soros says there is no difference between obaba and Romney, then Romney is certainly the Candidate we want in there. Like SOROS would tell the ruth about ANYTHING, just like obama. Obviously Romney is the candidate they fear the most.

Anonymous said...

Give your grandchildren the gift of a lifetime annuity because they wont be getting any pension or social security we are rolling back all benefits.

Anonymous said...

IF THEY DONT CUT WELFARE FIRST
IM AM GOING POSTAL
DIVORCED
NO CHILDREN
PARENTS DEAD
NOTHING TO LOSE NOW

Anonymous said...

People want to pay Zero tax so how you get a pension out of that i don't know.

Anonymous said...

They try to diminish the amount of my promised pension before any entitlement programs get cut and I promise they'll see Hell unlike ever before.

------

You will roll over and take just like you've been doing your whole life. I will take your pension plus more. We are sick of stupid cops thinking they can retire as millionaires. You won't. I will see to it.

You're just a cop. Do what you're told and like it because there is nothing else you will do. Ha ha.

- Rahm

Anonymous said...

bye bye

Anonymous said...

This man is our only hope.
Tuesday: RON PAUL 2012.
*******************
If Rue Paul is the answer, it was a stupid question.

BUGGER OFF said...

""Yout like a herd of bloody swine that refuse to leave the trough""

You pussies will just roll over and take it and in the end because you have all Your life,,vote a straight Democrat ticket.

Anonymous said...

nothing is untouchable.

Anonymous said...

Lets bring back child labor, work until you die and if you get hurt on the job our IME doctor will say your fine.

Anonymous said...

Learn the truth: Goldman Sachs has been stealing from public pension funds for years. Pension funds buy what Goldman sells. And what Goldman has been selling is high risk crap that they claim is moderate-low risk AAA-rated. There's your problem. Pension funds have been defrauded of BILLIONS by Goldman. But every top government finance and regulatory official is an ex-Goldman guy. It's legalized theft:

http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405

Vote them all OUT Tuesday or they will bury you under this City said...

30 Jun 2012 23:59 hrs must be the final answer.

All of us or them! NO MORE BULLFUCKINSHIT!

FREEZE THE PENSION! DOUBLE THE WAGES ! AND ELIMINATE THE PARASITES Running the fuked up medical section, 365 medical and unlimited IOD AUTHORIZED BY THE TREATING DOCTOR AT THE BEST POSSIBLE FACILITY.
Sue Coventry and any one connected to it into bankruptcy or jail. Cancel NATO/Immigration sanctuary/ subcontractors sub contracting subcontractors and build jails and more jails.

House them at the NEW White Sox park and the NEW Soldier Field parking lots til;; who cares!

Unless they want to watch the City burn before the National Guard gets here!

Old school is the New School!

Why did you non-voting non-taxpayers let this happen!!

Anonymous said...

I am 1000% percent behind Ron Paul,but he will NEVER win.

Anonymous said...

And Democrats need their votes so they will continue to tax the Middle class out of existence and give the money to these parasites.

Anonymous said...

If i was getting a million a year pension and they cut it 50% I'd still be doing OK.

Jim said...

Unions will bankrupt the country. They are like moslems, mafia, or communists. They want it their way all the time. They will never yield. They will never compromise. That includes police and fire unions. In cities like Oakland, Vallejo, Stockton almost all the money goes to fire and police.

Anonymous said...

The practice of corporate medicine doctrines are prohibited by federal law except in Crook County and Chicago.

How do you say MEDICAL SECTION you company suck hole scab bastard?

Anonymous said...

Just so long as the POLITICIANS are 1st. When you look at the likes of Former Mayor Richie 3 pensions State Senator,State's Attorney, & MAYOR,Bill Beavers 3pensions and I could go on BUT you get the message.

Anonymous said...

Just so long as the POLITICIANS are 1st. When you look at the likes of Former Mayor Richie 3 pensions State Senator,State's Attorney, & MAYOR,Bill Beavers 3pensions and I could go on BUT you get the message.