Wednesday, December 04, 2013

A Warning Sign For California--Who Will Heed It?

From the major Sacramento newspaper:
In a case with major implications for California, a judge in Michigan ruled that the bankrupt city of Detroit can impose cuts to its municipal pension plans.
Just like California's, Michigan's constitution states that pension obligations cannot be discharged.  That's cute, says the federal bankruptcy judge that isn't bound at all by state law.

Why does this cause me to worry?  Because every year I get a letter from CalSTRS, the State Teachers Retirement System, stating that I shouldn't worry that STRS is underfunded because the state constitution guarantees that the taxpayers will just pick up any shortfall.  Good planning, that.


allen (in Michigan) said...

This is inevitable, isn't it?

If pension obligations, due to transient political advantage, are allowed to have special status that prevents their consideration in a bankruptcy proceeding then the business of the state becomes first seeing to the pension obligation of a relatively small number of citizens after which everything else for which the state's responsible can be considered. If the pension obligation consumes 100% of the state budget then the state exists for no other reason then to service the pension obligation.

That's hardly a reasonable state of affairs and, more importantly, it's a state of affairs that can't endure. Everyone who isn't part of the privileged group knows they're being screwed and that knowledge will translate itself into election results. Even a state constitution amendment's no protection under that circumstance and the only hope is to federalize the obligation.

But it's not even much of a question whether the pension obligation can be federalized, the union has to operate on that assumption or they're done. Well, they're done.

Anonymous said...


Are you doing anything different with respect to retirement than, say, ten years ago? After all, this is your pension (among others) that is at risk...

-Mark Roulo

maxutils said...

A couple of things ... I don't find it fair that state employees, including teachers, pay in to a different system. Once you've signed a contract, though, it needs to be honored. I know our blog leader knows this, but California teachers are not generally entitled to social security... or, greatly reduced. Take away the pension they negotiated, and you have the same problem that creates SS in the first place. Second ... it's incumbent upon the voters to elect representatives who have some knowledge of finance, economics, and common sense. I would love to see that happen.