Courtesy of Mish.
Numerous cities have filed for bankruptcy in recent years, and many more cities are on the brink. The reason is untenable union wages, and more importantly untenable pension promises.
Sampling of Bankruptcy News
- Vallejo, California March 2009: Judge Rules Vallejo Can Void Union Contracts
- Los Angeles, California January 2010: Mayor of Los Angeles Says “Bankruptcy is Not an Option”
- Vallejo, California March 2009: Vallejo’s Inept City Council Blows It
- Central Falls, Rhode Island August 2011: Central Falls Rhode Island Files Chapter 9 Bankruptcy; Court Asked to Negate Collective bargaining Agreements; Vallejo Precedent
- Central Falls, Rhode Island September 2011: Central Falls Set to File Bankruptcy Exit Plan; 50% Pension Reductions, 40% Slash in Police and Fire Budgets Coming Up
- Vallejo, California January 2011: Vallejo Bankruptcy Plan Offers Unsecured Creditors 5-20%; JPMorgan CEO Forecasts More Municipal Bankruptcies; Bernanke Will Not Rescue Cities
- Stockton, California June 2012: Stockton CA Bankrupt; Unions (Not Housing Bust) Primarily to Blame; Pension Death Trap for Cities; What’s the Solution?
- Stockton, California June 2012: Wells Fargo Seizes Stockton California City Hall, Parking Garages; City Prepares Bankruptcy Contingency Plans; Bondholder Mediation Underway
- Scranton, Pennsylvania July 2012: Scranton Mayor Slashes All Public Worker Wages to $7.25 per Hour, Including Police, Fire, His Own; City Effectively Bankrupt
- San Bernadino, California August 2012: San Bernardino Files Chapter 9 Bankruptcy Petition; Pension and Medical Liabilities Impossible to Meet
- Atwater, California September 2012: California Hit Parade Rolls On: Atwater Scrambles to Avoid bankruptcy
- Stockton, California April 2013: Judge Rules Stockton CA Bankruptcy is Valid, City Acted in Good Faith
- Detroit, Michigan July 2013: Detroit Files Chapter 9 Bankruptcy; Oakland, LA, Others on Deck; Pension Promises vs. Bondholders in Spotlight; The Bright Side
- Vallejo, California October 2013: Vallejo, Mired in Pension Debt Again; Lesson for Stockton and Detroit – Shed Those Pension Obligations Now!
- Desert Hot Springs, California November 2013: Desert Hot Springs, CA Mulls Bankruptcy Due to Soaring Wages and Pensions; The “Only” Option; Just Desserts for CalPERS
- Scranton, Pennsylvania November 2013: Moody’s Warns of Scranton Bankruptcy; Fitch Downgrades Chicago Citing Pension Problems; Liberal Fantasyland
- Scranton, Pennsylvania November 2013: Scranton Unlikely to Make Required Pension Contribution; Mish Proposal: Offer the Union 35 Cents On the Dollar
- Chicago, Illinois November 2013: Retirement for Chicago Park District Employees, With Full Benefits: Age 58; Reflections on Chicago’s Second Triple-Notch Bond Downgrade in Six Months
What Went Wrong?
Those are not isolated incidents. I have written about Oakland, Houston, Baltimore, Harrisburg, and numerous other cities. Unions are behind the demise of every one of those cities.
Union coercion (public and private), vote buying, and inept city management in settling wage and pension disputes ruined every one of the above cities. Dozens more cities are on deck.
Detroit was obviously bankrupt ten years ago, and would be far better off had it declared bankruptcy ten years ago, but just did so in July of 2013.
Promises, Promises
Unions keep promoting their head in the sand belief that pensions and wage contracts are sacrosanct. Well they aren’t. Take a look at actual events.
- In 2009, a federal bankruptcy court ruled that Vallejo could cut pensions.
- In Central Falls, Rhode Island, in actual practice, pensions were slashed 50% across the board following bankruptcy.
- In October, the Federal judge overseeing the Detroit bankruptcy came flat out and stated Protecting Detroit pensions may violate bankruptcy code
In an exchange with an attorney representing Detroit’s two pension funds, U.S. Bankruptcy Judge Steven Rhodes said U.S. Bankruptcy Code would not afford special protection to pensions because, “It gives a priority to one unsecured creditor or one group of unsecured creditors, over all the others.”
Read that ruling over and over again until it sinks in. There is only one inescapable conclusion: Public Union Pensions are NOT Sacrosanct, regardless of what state constitutions stipulate.
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