October 10, 2016

PENSION TSUNAMI UPDATE: Unions Ask Court To Rule Against Math:

Pension hawks celebrated in August when a California appeals court upheld a state law limiting the ability of public employees to spike their pensions late in their careers. But with the case possibly headed to the state’s Supreme Court, the battle isn’t over yet. . . .

The so-called “California rule” has historically prohibited the state from reducing pension benefits over time. So when union-dominated public pension funds would purposefully conceal the costs of their liabilities and eventually run up a huge shortfall, the state would be unable to do anything except increase its own contributions even further. The California appeals court ruling from this summer modified this precedent by holding that, “while a public employee does have a ‘vested right’ to a pension, that right is only to a ‘reasonable’ pension—not an immutable entitlement to the most optimal formula of calculating the pension.”

It’s no surprise that the unions are looking to get the ruling tossed.

Hopefully the California Supreme Court won’t give more cover for more can-kicking and phony accounting. Municipalities in the Golden State and across the country are facing deep fiscal holes that they will not emerge from without either adjustments to pension guarantees or draconian cuts to vital public services like education or public safety. As more and more cities start to feel the tremors of the coming avalanche of defaults and credit downgrades, judges need to give local governments more fiscal flexibility than they have had in the past. Without that flexibility, more municipalities are headed for bankruptcy. And once they file for Chapter 9, all bets are off, and pensioners could face an even worse haircut than anything being discussed today.

Something that can’t go on forever, won’t. Debts that can’t be repaid, won’t be. Promises that can’t be kept, won’t be. Plan accordingly.

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