Public Safety Spending and Bankruptcy

We’ve talked previously about allowing bankruptcy as a possible remedy for municipalities to get out from under pension obligations that have become too burdensome. In fact, this is an option for cities and towns in California: it does not have to stem from pension hardship per se, but any financial difficulty that arises can allow California municipalities to file Chapter 9 bankruptcy and reorganize.

Not so under a new proposal that would require the approval of a state commission, made up of state legislators, to sign off on a bankruptcy filing. The change can be traced to a dispute in the City of Vallejo, where leaders partly blamed work contracts with police and firefighters for pushing the city into bankruptcy, and won permission from a bankruptcy court in March to scrap its contract with the firefighters’ union.

The statewide firefighters’ union was spurred into action following the Vallejo case, obviously wanting to protect their members’ interests. Now the battle will play out in the state legislature.

Sounds eerily familiar to what will happen here should an emerging proposal get traction. That plan, designed by the Public Employee Retirement Commission, would place plans having less than half of the assets needed to meet obligations into the Pennsylvania Municipal Retirement System, currently a voluntary system covering about 800 plans. Plans ending up under state control would have strict limits on benefits to current and future employees.

"We’re opposing this, guys…We’re shutting it down" was the predictable reaction of the Pittsburgh fire union president. Unlike California’s cities, Pennsylvania’s municipalities cannot "shut down" and declare bankruptcy. They can do what Pittsburgh is doing now: exist under Act 47, get incremental contract changes, and hope to eventually emerge from oversight.