United States District Judge Christopher Klein ruled that the California Public Employees Retirement System (CalPERS) is not protected from cuts in the City of Stockton bankruptcy case. Since it originally filed for municipal bankruptcy protection in the City of Stockton and CalPERS have asserted that CalPERS enjoys a favored nation status, and is exempt from any cuts through the City’s bankruptcy process. In other words, CalPERS and the City have asserted that even if every other creditor receives pennies on the dollar or nothing at all, CalPERS is entitled to every penny that it says it is owed. Never mind the fact that the City borrowed heavily from bondholders to fund its pension benefits. In 2015, the City of Stockton will spend about $28 million dollars on its pension obligations (twice as much as it did when it declared bankruptcy in 2012), or approximately $1 out of every $5 of revenue that it takes in.
Immediately following Judge Klein’s decision, many unions and other sympathetic commentators started with their tale of horribles, about how a cornerstone of public sector employment has been grossly and unfairly compromised. A more astute and sophisticated reaction would have been positive. Public sector employees and their employee organizations directly benefit from a financially stable and healthy employer. The only way existing employees can get any form of regular wage increases (remember those?) is if the employer is financially stable and healthy. A California city or county that is on the verge of bankruptcy cannot give salary or benefit increases, cannot hire adequate staffing, and cannot adequately provide the services it is required to provide. Many unions forget this one key concept: They are not a retiree association. They represent active employees. It is absolutely to the benefit of active employees to give their employers any and all necessary tools to properly manage their financing. That might include managing their pension obligations. That way, the employer can offer regular and competitive wage increases to the active employees. In addition, the employer can adequately staff departments, minimize overtime costs, and better provide the services it was set up to provide in the first place. The employee association benefits because its members receive higher pay and because new employees are regularly hired, thereby increasing the number of association members.
Despite the existence of bankrupt cities like Stockton and San Bernardino, most California cities, counties, and special Districts are managed at least semi-competently and are not on the verge of a Chapter 11 Municipal Bankruptcy. Those competently managed cities, counties, and special Districts need every tool possible to remain financially solvent. And don’t worry about the managers of those cities or counties drastically reducing or eliminating your pension benefits. Why? Because they generally receive exactly the same pension benefit, and are not likely to cut their own pension benefits.
Unions need to take a more sophisticated approach to labor relations instead of droning on with the same old tired rhetoric they have been throwing out for the last 25 years.