By John Moore.
Overlooked in the Pacific Grove government employee pension reform discussions is that employees and retirees are real people. In Rhode Island, many retirees who had been promised a modest $25,000-per-year retirement had that sum reduced to $10,000 per year. Their plight is tragic.
The discussions in Pacific Grove lump employees and retirees together. The clerk who is to retire at $30,000 per year has been subjected to the same type of criticism as the 52-year-old fire chief who may retire at age 52 at $125,000 to $250,000 per year. I do not want to have the $30,000-per-year retiree cut to $10,000.
In Pacific Grove, from 2001 to the present, the highest-paid safety officers and elite staff have feasted with increased salaries and pensions, those at the middle have survived, and those at the bottom have been treated like throw aways.
Many Pacific Grove retirees receive modest retirements. It would be cruel to subject them to austerity at this stage of their lives. If the illegal enactment of 3%@50 (up to 90% of salary after age 50) is not repealed, bankruptcy is a certainty for Pacific Grove. Pension debt and the annual costs of pensions is the dominant factor in the financial fall of Pacific Grove; therefore, it will need to modify pensions in bankruptcy.
In bankruptcy, Pacific Grove should not favor the highest paid–the category of employees most responsible for the city’s demise. The reason city managers and city attorneys are paid so well is because they were to be the guarantors of expertise to prevent the fall of cities like Pacific Grove. They failed. They should not be rewarded by impoverishing retirees who receive modest retirements.
In a Chapter 9 (bankruptcy), only the city can propose a plan for the adjustment of debt and contract obligations. It will be given flexibility in suggesting a plan of pension modification. Pacific Grove should divide retirees and employees into three groups: the rich, the middle, and the bottom. The rich should take the greatest reduction of pension promises in a Chapter 9. In my view, a pension exceeding $7,000 per month is rich and should be cut accordingly.
A successful Chapter 9 should assure that the city comes out of bankruptcy with a reasonable level of services. The city’s revenue will be enhanced by larger pension and salary cuts for the rich and powerful employees and retirees. That will allow the middle and bottom retirees to survive.
Bond holders must be treated fairly. The Stockton bankruptcy proposes dramatic cuts in bond obligations, but leaves pensions of $175,000 per year untouched. Cities need to retain the ability to borrow for long-term improvements like roads, sewers, and water. It can’t have it both ways.
New taxes, like those proposed in Salinas, Monterey, and Stockton, propagate a pension system that has failed. Unless new taxes are used exclusively to reduce unfunded pension obligations, new taxes will only serve to perpetuate and enhance the size of the unfunded deficits by feeding excessive pensions.
The pension administrator CalPERS claims that as a state-sponsored entity, it can’t be touched in bankruptcy. While I doubt that (federal law is supreme), the employees of a city or county are not a state-sponsored entity, and a bankruptcy court can cut pension promises made to those employees as long as the cuts are fair.
If PG is to go through bankruptcy, it should protect retirees and employees at the bottom by reducing pensions for the rich and powerful–those who brought the fall.
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About the Author: John M. Moore is a resident of Pacific Grove, Ca. He is a licensed member of the California State Bar and a member of the “Public Law” section of the State Bar. John graduated from San Jose State College with majors in Political Science and Economics (summa cum laude). He then received a JD from The Stanford School of Law and practiced business and trial law for 40 years before retiring. In 1987, he was the founding partner of a Sacramento law firm that he formed in 1987 to take advantage of the increased bankruptcies brought about by the Tax Act of 1986. Although he did not file and manage bankruptcy cases, he represented clients in numerous litigation matters before the bankruptcy court, including several cases before judge Klein, the current judge of the Stockton bankruptcy case. He is an admirer of Judge Klein, for his ability and accuracy on the law. As managing partner, he understood the goals of bankruptcy filings and its benefits and limitations.