Saturday, December 14, 2013

I hope this stands

Many states have provisions in their constitutions that effectively protect public workers pensions from any outside threat, including bankruptcy.  This, of course, makes it very difficult for underwater cities, such as Detroit, to get its fiscal house in order via bankruptcy since pension plan accounts are among the largest sources of future financial commitments. But, in what may go down as a huge judicial ruling, a judge in Detroit declared, in effect, that bankruptcy proceedings have the power to "impair" pension accounts.  In other words, previously untouchable pension funds may now be touchable.  This, of course, scares the heck out of the unions as well as statists across the land.  Here's a slice from Reason's coverage:
This was a landmark decision not because of any surprise about the fate of Detroit, with its $18 billion in debt. The big news is the judge ruled that pension rights, which have protections in the Michigan constitution, can be “impaired” under federal bankruptcy law. This could have nationwide impact if it becomes precedent.
“If it stands, this is huge,” said Carl DeMaio, the former San Diego councilman and architect of the city’s pension-reform initiative. DeMaio, now a congressional candidate, said his 2012 initiative (Proposition B) was designed to work around the existing court standard assuming that pensions couldn’t be touched, even in bankruptcy. This ruling, he added, could lead to “municipalities lining up outside of bankruptcy court.”
Good article, worth the time, available here.