A bankruptcy court judge ruled today that the city of San Bernardino, Ca. was eligible for bankruptcy protection, setting up a showdown between the city and its employees.
The ruling makes it likely that San Bernardino will propose a plan to get out of debt by cutting money promised to the California Public Employees’ Retirement System, also know as Calpers. Not surprisingly, Calpers is strongly opposed to such a move.
San Bernardino declared bankruptcy last summer, saying it had run out of money to pay for the day-to-day operations of the city in large part because of pension obligations. Calpers lawyers had argued that the retirement system should be treated separately from other creditors and not be eligible for cuts.
The judge in the case, however, ruled in favor of the city, saying “The city desires and needs to formulate a plan; it is their only hope.”
The case in San Bernardino may be a preview of one coming up for Detroit on Sept. 18. That’s when oral arguments will be heard on Detroit’s bankruptcy case. In both cases, cuts to current and future pension benefits are being strongly opposed by public unions and pension plans, and odds are good that any cuts to retirement benefits will get appealed to the U.S. Supreme Court.
The opinions contained in this column are solely those of the writer.
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