Los Angeles CA Vol. X
October 19, 2014
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818 243 1502
The Government Watchdog
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don't belong in politics." Jesse Unruh. Moreover, the same holds true for municipal unions and their PACs.
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Representatives– Our vision is to live in a community where all people can expect its representatives to promote open
government and transparency, adopt fiscal accountability, efficiency and effectiveness, have integrity and be respectful of and
responsive to its constituents.
“The people of this State do not yield their sovereignty to the agencies which serve them. The people, in
delegating authority, do not give their public servants the right to decide what is good for the people to know
and what is not good for them to know. The people insist on remaining informed so that they may retain
control over the instruments they have created.”
Ralph M Brown
TIP: If it is blue, click through
Detroit BK
Kenneth Landon
Taking time off to research
his next article
Publisher – Straight Talk
Sound Bites
Questions for the GNP
The Fire Service Myth
Solution to Dilemma
Najarian puts his needs first
Glendale is bankrupt
Vanguard News Service
Call for volunteers & Interns
Common Area
Marty Jones on the Prop.
David Kupetz on
Stockton Pension ruling
Public Records
Fuentes Party
The Insider
GPD Capt. Rock
The Dais
Same old
Parting Shot
Sign up or lose out
Political Corruption
Bankruptcy that Council needs to know
Suggestions on understanding the November 4th ballot propositions
PROP 1- A YES vote would authorize the sale of $7,500,000,000 general obligation bonds for water treatment etc. at
a cost of $14,000,000,000 paid out at $360,000,000 a year for 40 years.
Vote NO
PROP 2- A yes vote would move revenue from the general fund to a ‘rainy day’ fund with little or no oversight. A no
vote would leave the status quo and place responsibility for wasting money on elected officials who waste it and can be
removed from office by voters.
Vote NO
PROP 45- A yes vote will increase the scrutiny over insurance rate increases much the same way that prop 103 did
auto insurance rates. There will be greater transparency under Prop 45. A no vote will continue the same old game plan
that allowed the health insurance rates to rise 185% since 2002, 5 times the rate of inflation .
Vote YES
PROP 46- A yes vote will drive inflated costs for healthcare services and remove the cap on medical malpractice
suits. Testing healthcare workers for drugs is a function that if done should be done by the healthcare providers
employer. There is no showing that drugs and alcohol are an issue. Why should doctors and nurses have a
Constitutional mandate for drug testing?
Vote NO
PROP 47- A YES vote will reduce the number of low crime defendants in our overcrowded and costly prison system.
Prison guards, failed rehabilitation systems and programs haven’t worked. The plan to reduce overcrowding and
expenses by reducing sentences, a savings of hundreds of millions of dollars annually, money that will be better used
Vote YES
PROP 48- A yes vote will allow Indian Tribes to build a casino wherever they can buy land. Casino gambling drains
even welfare money from the most vulnerable people.
Vote NO
More on the Detroit Bankruptcy
From The VOICE of DETROIT – The Detroit Active and Retired Employees Association (DAREA) say they and others will appeal
U.S. Bankruptcy Judge Steven W. Rhodes’ final ruling on the Plan of Adjustment if it continues to devastate retirees. As the case
stands now, it appears likely only global banks will profit from the POA.
Major creditor and final holdout Financial Guarantee Insurance Corporation (FGIC), which along with Syncora, Inc. insured the
notorious $1.5 billion “Certificates of Participation” loan to Detroit in 2005-06, is reported to be ready to settle by Oct. 16. In exchange,
they will get cash from bond issues and large chunks of revenue-producing downtown city real estate.
“We have the resources for an appeal now,” retiree Cecily McClellan told VOD.
“The Objectors to the bankruptcy are being called today to appear in court tomorrow at 8:30 a.m. The lack of notification is to prevent
participation, preparation and public awareness. These are citizens without attorneys. We need your support and presence in court
Wednesday at 8:30 a.m. in Room 242 of the Federal Building, 321 W. Lafayette.”
Individual objectors, including former Detroit City Councilwoman JoAnn Watson, along with many DAREA members, prepared
motions with witnesses and briefs at Rhodes’ command weeks ago, but were not informed exactly when the hearing would be.
Rhodes said at the time that he planned to schedule it on the last day of the POA trial.
Jones Day, on behalf of the city, has already filed an omnibus response to the objectors, likely to speed Rhodes’ final decision along.
McClellan noted that drastic cuts to retirees’ pensions and annuities proposed in Detroit’s bankruptcy are now being considered in the
California bankruptcy proceedings of Stockton and San Bernardino. Previously, those cities had refused to touch pensions
themselves, while at the same time enacting cuts in retiree health care. CalPERS (California Public Employee Retirement System),
the largest in the U.S., wielded its clout in hearings to protect pensions.
CalPERS also came to the aid of Detroit, filing an amicus brief with the Sixth Circuit Court of Appeals to support appeals of Judge
Rhodes’ bankruptcy eligibility decision by seven Detroit retiree and union entities. All seven have now indicated they will withdraw
their appeals if the so-called “Grand Bargain,” $816 million to the retirement systems while the city withdraws its legally obligated
payments for at least the next 10 years. Detroit’s retirement systems are worth about $6 billion.
However, Stockton bankruptcy judge Christopher Klein, taking a page from Rhodes’ eligibility decision last December, ruled Oct. 1
that California’s public employee retirement law “is simply invalid in face of the U.S. Constitution.” Terming state public pension
protections nothing but contracts, as did Rhodes, he said they could be cancelled or modified under the U.S. Bankruptcy Code in
order to pay off bankers.
Klein has not actually sanctioned pension cuts yet, because the Stockton bankruptcy has not even reached the Plan of Adjustment
stage, although it was filed a year before Detroit’s. Detroit is the only city that filed Chapter 9 bankruptcy under at the command of an
unelected Emergency Manager, Kevyn Orr.
Bloomberg News reported that Californians for Retirement Security, a coalition of schoolteachers, police officers and other public
employees, blasted Klein’s ruling. .
“We are disappointed that the judge has sided with Wall Street in a decision that has the potential of devastating citizens, employees,
and making bad situations worse,” said Dave Low, the group’s chairman.
The Detroit Free Press reported today that FGIC, after months of closed-door mediation supervised by U.S. District Court of Eastern
Michigan Chief Judge Gerald Rosen, is ready to reach a deal by Oct. 16, 2014.
“City lawyer Tom Cullen told U.S. Bankruptcy Judge Steven Rhodes that the sides are close to a deal and hope to announce it in
court Thursday morning,” reported Matt Helms. “Cullen said only that the deal would involve a share of bonds the city will issue to pay
off creditors and ‘development aspects’ he didn’t detail.
“People familiar with the negotiations have told the Free Press that the deal with Financial Guaranty Insurance Co. would involve
cash from bonds and access to downtown real estate, including possible long-term leases of city parking garages. FGIC has a $1.1
Syncora, the other POC insurer, reached a similar deal with the City (i.e. Kevyn Orr-Jones day) Sept. 15. Syncora was a minor
insurer compared to FGIC. Their deal involves a $44.8 million payout from new debt, plus control of the Detroit-Windsor Tunnel, and
the Grand Circus Park Garage, including all their revenues.
FGIC’s deal can be expected to be much larger.
In January, EM Orr filed a lawsuit against the POC holders, stating the entire debt, which has skyrocketed to $2.8 billion with interest
and default fees, is “void ab initio, illegal and unenforceable.” Instead of canceling the debt in toto, Orr and Jones Day have played
footsie with the creditors under the table during Rosen’s secret mediation sessions. Rhodes has never heard the lawsuit.
- See more at
CALIFORNIA CONSTITUTION ARTICLE 1 DECLARATION OF RIGHTS SEC. 2. (a) Every person may freely speak, write and publish his or her
sentiments on all subjects, being responsible for the abuse of this right. A law may not restrain or abridge liberty of speech or press...”
You may agree or disagree with the views below. Feel free to comment on them. The
commentaries do not necessarily reflect the position of Vanguardians. They represent the opinion
of the writer.
Join the most informed citizenry in Glendale. We continue to welcome legislators from other local
agencies and those who are looking toward becoming an educational resource in their own
Questions to ask the Glendale News Press…Why haven’t you been honest about Glendale Police Sgt. Vahak
Mardikian? You covered his Civil Service Commission only on the first day. You weren’t there to hear the
Commission say to Captain Rock that his testimony lacked credibility; that he fabricated complaints. You
haven’t questioned that a police command officer is not on the Brady List (a list that the DA would disclose that
the officer has lied). With the uproar that you created about Mardikian being paid to stay home as part of the
settlement of the Federal lawsuit, you haven’t disclosed that three of the officers retaliated against were on
paid administrative leave for over a year each, the public being deprived of their services for that time while the
GPD generated phony investigations of which none were shown to have any merit. How much money have you
received from the City of Glendale and why aren’t you digging into the details of what is really happening to
share with the public?
Firemen, at the beginning of fire departments, were compensated by fire insurance companies. Have a read
from Wikipedia: The earliest known fire department was formed in Ancient Rome by Egnatius Rufus who used his slaves to
provide a free fire service. These men fought fires using bucket chains and patrolled the streets with the authority to
impose corporal punishment upon those who violated fire-prevention codes. The Emperor Augustus established a public fire
department in 24 BCE, composed of 600 slaves distributed amongst seven fire stations in Rome.
Fire departments were again formed by property insurance companies beginning in the 17th century after the Great Fire of London in
1666. The first insurance brigades were established the following year. Others began to realize that a lot of money could be made
from this practice, and ten more insurance companies set up in London before 1832: The Alliance, Atlas, Globe, Imperial, London,
Protector, Royal Exchange, Sun Union and Westminster. Each company had its own fire mark, a durable plaque that would be
affixed to the building exterior. A company's fire brigade would not extinguish a burning building if it did not have the correct fire
The city of Boston, Massachusetts, established America's first publicly funded paid fire department in 1679. Established in 1853,
the Cincinnati Fire Department is the oldest paid fully professional municipal fire department in the United States. Fire insurance
made its debut in the American colonies in South Carolina in 1736, but it was Benjamin Franklin who imported the London model of
insurance. He established the colonies' first fire insurance company in Philadelphia named the Philadelphia Contributionship, as
well as its associated Union Volunteer Fire Company.
Amsterdam also had a sophisticated firefighting system in the late 17th century, under the direction of artist Jan van der Heyden, who
had improved the designs of both fire hoses and fire pumps.
In the 19th century, the practice of fire brigades refusing to put out fires in buildings that were uninsured led to the demand of central
command for fire companies. Cities started to form their own fire departments as a civil service to the public, forcing private fire
companies to shut down, and merging their fire stations into the city's fire department. In 1833, London's ten independent brigades all
merged to form the London Fire Engine Establishment (LFEE), with James Braidwood as the Chief Officer. Braidwood had
previously been the fire chief in Edinburgh, where the world's first municipal fire service was founded in 1824, and he is now
regarded, along with Van der Heyden, as one of founders of modern firefighting. The LFEE then was incorporated into the
city's Metropolitan Fire Brigade in 1865 under Eyre Massey Shaw.
In 1906, the first motorized fire department was organized in Springfield, Massachusetts, after Knox Automobile of Springfield
produced the first modern fire engine one year earlier.
Today the municipal fire departments rarely put out structure fires due to modern building codes while firemen
tell the masses that they spend every day rescuing burning babies from buildings. Guess what, the public
records don ‘t support that,
Firemen are among the most highly paid government employees while having the safest jobs according to the
Bureau of Labor Statistics. In fact the City of Glendale refuses to share the annual OSHA reports showing GFD
injuries even though we have told them they could redact the names.
Take a look at the reports that show the number of calls for service and that they are overwhelmingly for
medical. How much does a firemen get paid?
$150,000 a year on average. Educational requirements? A GED. After 30 years his pension is $150,000 along
with free healthcare and a 5% COLA every other year. A fireman works 100 days a year of which he is entitled 8
hours of sleep. $150,000 is not bad for 66 days of work.
A private employer will lay off staff that is no longer needed. The City of Glendale pays employees to retire
early making certain they continue to be taxpayers’ burden. As I look at the Glendale City Council I don’t see
anyone that has been a private employer who understands the financial burden of people expenses while
running a business.
Revenues stay flat and people expenses continue to escalate as the City Council raises salaries and benefits
and services are reduced. More potholes. Close the police headquarters at night. Fewer customer service
employees. Combining departments while keeping middle-managers. Ambulances being operated by minimum
wage workers. Seeking grants to run the city. Tsk. Tsk. A City Manager who does not sign off on reports in
order to say he has clean hands.
There is a solution to the financial dilemma that council members and former council members have placed the
taxpayers. Bankruptcy Judges in Detroit, Stockton and San Bernardino have faced the situation and said that
pensions, benefits and salaries are fair game. The median resident of Glendale makes far less than all but the
minimum wage works in Glendale government and the City Council wants you to have even less.
Should the taxpayers be on the hook for millionaire Council member Ara Najarian’s big mouth in having
Glendale Adventist Medical Center fire Steven Gallegos, their non-smoking advocate, for writing a letter? It
shows that working people are meaningless to 1%er Republican, Najarian.
For over 10 years I have monitored Glendale’s published financial reports and watched as the reserves dwindle
to near nothing. In 2005 I served on a campaign committee of a management consultant who worked with large
and small corporations and who had a strong instinct as to how to correct the financial issues. She was
approached by people that wanted to help financially with a promise that she would do their bidding once she
was elected. She was sickened by what she learned and who and how she was approached.
We can’t blame Obama for the stupidity of Glendale voters who give their ballots to other people to cast their
ballot for politicians who will do their bidding. Sad but true.
Glendale is bankrupt. Add up the debt, the unfunded liabilities and you can see for yourself. Management will
tell elected officials that the City will need to borrow their way out of debt which only increases debt. Paying
firemen $150,000 a year for life and beyond is unsustainable. The two-tier system was not well thought out;
making the change in the pension retroactive is unsustainable.
Ask yourself why elected officials would sell their souls to keep being re-elected. The answer is graft and
The penalty good men and women pay for indifference to public affairs is to be ruled by evil men and women. PLATO
A wise man changes his mind sometimes, but a fool never. To change your mind is the best evidence you have one.
Letters published do not necessarily express the opinion of Vanguardians, Vanguard News Service, the
organization, or Barry Allen. Names are used only when requested. Initials are used as there are people, unbelievably, who are concerned
with retaliation or have issues before a legislative body. Letters are published at the editor’s sole prerogative.
[ED-In response to the VNS Proposition election guide, the following is from an advisor.]I am going to vote
Democrat. And I guess, yes on 45. Beyond that, I haven’t given it a lot of thought. I hope the Dems keep the
senate and people stop watching Fox News. I think if the Dems had congress this country would be a lot
better off than it is. I am a big fan of Krugman and Moyer and that is where I am. Martin D. Jones
Dear Friends and Colleagues,
I would like to share my article recently published in the Los Angeles Daily Journal, Stockton Pension Ruling Is No
Surprise. Please follow the link below to download a copy of the article.
Stockton Pension Ruling Is No Surprise By David Kupetz.pdf
Should you have any questions or client matters related to restructuring, business reorganization, bankruptcy or other
insolvency related litigation or transaction issues, please feel free to reach out to me.
David Kupetz - Partner
Meet and Greet and support EDITH FUENTES campaign for Glendale City Council 2015 on Thursday, October 23,
2014 from 6:30pm at Max's of Manila, 313 West Broadway, for a fundraiser hosted by FABAG's President Ruby,
Past Presidents Marlene and Nini and other Friends of Edith
placed as news items on a space available basis.]
. [This is not a paid political advertisement. Notices are
As people are qualified for the April ballot, Vanguard News Service will publish one 1-page
article from each candidate upon their written request.
City Council Agenda for the City of Glendale CA
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City employees and retirees that care, write the Insiders about the way the City is run. As
they are concerned about retaliation, their identities are secret. Vanguard provides them
the opportunity to have this forum. The comments are their own.
The question many of us ask ourselves is, “Why Is Captain Michael Rock still a police manager?” It is time that the
Good Old Boy Club is dissolved so we can get on with important police work.
“Everybody knows that corruption thrives in secret places, and avoids public places, and we believe it is a fair
presumption that secrecy means impropriety.” President Woodrow Wilson
Coming up on Council, Housing Authority and Successor Agency Agendas this week –
See #3 for links
Ego has a voracious appetite, the more you feed it, the hungrier it gets. Nathaniel Bronner Jr.
PARTING SHOT To continue to receive Vanguard News Service go to and sign up.
Viewing Political Corruption More Broadly By Lee H. Hamilton Special to the Gazette
Earlier this year, veteran political writer Thomas Edsall reported an eyebrow-raising fact about Americans’ views toward
government. Polling by Gallup, he noted, found that the proportion of Americans who believed that corruption is
“widespread” in government had risen from 59 percent in 2006 to 79 percent in 2013. “In other words,” Edsall wrote, “we
were cynical already, but now we’re in overdrive.”
Given the blanket coverage devoted to public officials charged with selling their influence, this shouldn’t be surprising.
Former Virginia Gov. Bob McDonnell and his wife were convicted last month of violating public corruption laws. Former
mayors Ray Nagin of New Orleans and Kwame Kilpatrick of Detroit were good for months of headlines. So were
Republican Rep. Rick Renzi, convicted last year on influence-peddling charges, and Democratic Rep. Jesse Jackson
Jr., who pled guilty to charges of misusing campaign funds.
If you add state and local officials who cross the line, it might seem that we’re awash in corruption. Yet as political
scientist Larry Sabato told The New York Times, that’s more perception than reality. “I’ve studied American political
corruption throughout the 19th and 20th centuries,” he said, “and, if anything, corruption was much more common in
much of those centuries than today.”
Nor have the numbers over the past couple of decades risen. In 1994, according to the Justice Department’s Public
Integrity Section, 1,165 people were charged in public-corruption cases, of whom 969 were convicted. Last year, 1,134
were charged, of whom 1,037 were convicted.
Corruption is hardly a negligible issue. Americans rightly have very little tolerance for public officials who are on the
take. Officials who violate the law in this regard should face criminal prosecution and incarceration.
But what’s notable about our corruption laws is how narrow they’ve become. This point is driven home by Fordham Law
School Professor Zephyr Teachout in her new book, Corruption in America. “As a matter of federal constitutional law,”
she writes, “corruption now means only ‘quid pro quo’ corruption.” Prosecutors today have to prove an intentional
exchange between “briber” and public official, in which the official receives a benefit for taking action.
Teachout argues that our Founders were quite resistant to public behavior promoting private interest. She quotes
George Mason, for instance, arguing against giving the President the power to appoint key officials: “By the sole power
of appointing the increased officers of government,” Mason insisted, “corruption pervades every town and village in the
As late as the second half of the 1800s, American society was alarmed by the notion that private individuals might seek
to influence government on their own or others’ behalf. “If any of the great corporations of the country were to hire
adventurers... to procure the passage of a general law with a view to the promotion of their private interests, the moral
sense of every right-minded man would instinctively denounce the employer and the employed as steeped in
corruption,” the Supreme Court declared in 1874.
We have another word for “adventurers” these days. We call them lobbyists.
Americans remain uncomfortable with “corruption” as our forebears viewed it. A hefty majority believe that government
is run on behalf of a few big interests. And Congress, whose ethics committees have not been rigorous in looking for
misconduct that brings discredit on their chambers, has contributed to that view.
I would hardly contend that all who seek to promote their private interests are corrupt. But I do think the Founders had a
valuable insight when they saw that a focus on private concerns could lead to neglect of the common good.
I have the uneasy feeling that too many politicians are self-absorbed, failing to put the country first, and using their office
to promote their private interests. Our Founders had very firm ideas about the importance to the nation of “virtue” in a
public official — and they were thinking expansively about the basic standards of public accountability.
Maybe it’s time we looked to them for guidance, and not think of corruption only in the narrow sense of violations of
specific laws or precepts, but more broadly in terms of failing to pursue the common good.
Lee Hamilton is Director of the Center on Congress at Indiana University. He was a member of the U.S. House of Representatives for
34 years.
- See more at:
Cities could save pensions in bankruptcy
• In 2005-06, the state of California paid $3.6 billion for employee pensions. This year, it will spend $5.8 billion – an
increase of 61 percent (not counting the UC system, which handles pensions separately).
• The little city of Vallejo – the first to be pushed into bankruptcy court by crippling pension and pay costs – spent $11.1
million on pensions in 2012-13 and projects that will balloon to $19.6 million in 2019-20, an increase of nearly 77
• Most every city in Orange County, and statewide, will see CalPERS bills spike an additional 50 percent or so in the
next few years as CalPERS demands they kick in more to cover Great Recession investment losses, longer-living
retirees and billions in unfunded liabilities.
• State and local governments began dramatically boosting pension benefits for workers in 1999. Fast-forward to 2013
data from CalPERS: The average pension for those who retired after 2000 and had at least 30 years of service was
$68,403 – more than twice the maximum Social Security benefit that a private-sector retiree could receive after working
for 35 years ($31,704), according to an analysis by the right-leaning California Policy Center.
Mother said that if you don’t ask for what you want, you’ll never get it.
We mention this because, even though rising public pension costs have helped drive cities into bankruptcy, none
has ever asked the court to reduce those pension costs. Not even by one single penny.
Stiff those who bought the city’s bonds! Hike taxes on Joe Citizen! But don’t think about reducing pensions, because in
California the pension promises made to public workers the day they were hired are considered eternal, immutable,
unalterable. Even if the city can’t afford them.
Recently, however, the stone tablets on which all that was written shattered, changing the game for every public agency
and Joe Citizen in California.
“California public employee retirement law … is simply invalid in the face of the supremacy clause of the United States
Constitution,” declared the federal judge handling the city of Stockton’s bankruptcy case. “I've concluded the pension
could be adjusted.”
Wow. Was Mother wrong?
Mind you, Stockton never asked to adjust pensions (it wants to pay pension bills in full and give bondholders just
pennies on the dollar). And the gargantuan California Public Employees’ Retirement System – which has long (and
some say arrogantly) argued that pension obligations are sacrosanct, even in federal court – says, “The real precedent
… is that even if municipalities are allowed to impair pensions in the rare situation of bankruptcy, cities like Stockton can
make the smart decision to protect the pension promises for their public employees.”
They could. But that doesn’t mean a bankruptcy judge will agree.
Judge Christopher Klein declined to rule on Stockton’s we’ll-pay-pensions-in-full-and-give-bondholders-just-a-penny-onthe-dollar-thank-you-very-much recovery plan, unsure if it’s, you know, fair. Klein said he needed to think more about it
and will take up Stockton’s recovery plan again next week. Every pension reformer and defender in California is
essentially holding his breath in the meantime. The judge may approve Stockton’s plan, or he may not. But with his
declaration – and a similar one in Detroit’s bankruptcy last year – one might argue that every public agency in California
has been handed a big stick that can hover over bargaining tables in employee union negotiations: How about maybe
let’s agree to reductions here, voluntarily, and avoid the whole messy business? “There is no question that decisions
like Stockton have a chilling effect on employees and their representatives,” said Nick Berardino, general manager of
the Orange County Employees Association, which represents some 18,000 public workers at city and county
governments. “It’s like a wake-up call,” said Karol Denniston, a municipal bankruptcy expert and partner at Squire
Patton Boggs in San Francisco. “Everybody should be looking at this and saying, ‘There’s a game changer under way,
and we’re going to have to re-evaluate our positions.’ It would be a good time for everyone to exercise some common
So California cities apparently have this big stick. Will they use it? Will legislators find a way to stop them?
Orange County Supervisor John Moorlach, dubbed “pension warrior” in this space, suspects that the real impact will be
at the bargaining table. More and more groups will find it in their best interest to follow in the footsteps of the
aforementioned Orange County Employees Association.
In 2006, the county had racked up $1.4 billion in unfunded liabilities for retiree medical benefits. The county negotiated
with OCEA and other bargaining units, and they all embraced reductions that shrunk the liability by $1 billion, or 71
In 2009, the county and OCEA struck a groundbreaking agreement: Workers could choose to decrease their pension
formulas going forward and opt into a 401(k)-type program. It would give workers more take-home pay and cost the
county less. It was viewed as win-win but has been blocked by the Internal Revenue Service, which frowns upon
formula changes.
The bigger picture, however, may be that such things can be negotiated, and the new hammer might help it all come to
pass. “The Orange County Employees Association showed that working at the bargaining table can provide creative
results,” Moorlach said. OCEA’s Berardino is more circumspect. He’s not sure Klein’s conclusions will have much
impact, “especially in light of the governor’s pension reforms last year and the recovering economy,” he told us. “I think
our reformed retiree medical program will have the best chance to be accepted by other labor groups, but our defined
benefit/contribution hybrid plan will find very little interest or support.” Stockton, for its part, strongly argues that pension
reductions would leave it decimated as workers flee to other agencies with better benefits. But that might not persuade
the court. “In Stockton, it sure looks like the city is going to be forced to cut the pensions, at least a little,” said David
Skeel, a bankruptcy expert and corporate law professor at the University of Pennsylvania Law School. “It will be
interesting to see what Stockton does, since the city clearly isn’t anxious to go down that road. But the judge has
signaled that Stockton needs to, and I personally think he’s right.”
Last month, Moody’s Investors Service calculated that the 25 largest public pensions in the U.S. – including CalPERS
and the California State Teachers’ Retirement System – face about $2 trillion in unfunded liabilities. They averaged
“robust” returns on their investments despite the recession, but liabilities tripled in the same period. If public agencies
can give these obligations a haircut in bankruptcy court, yet another front may open up in the pension wars: State
lawmakers could make it harder for cities to declare bankruptcy. California lawmakers control this process, and they’ve
already made it more cumbersome: After Vallejo, the Legislature required cities on the brink of fiscal insolvency to go
through 90 days of arbitration with their creditors before filing in federal court. Legislators could slam shut the door to
bankruptcy court altogether. “I wouldn’t be very surprised to see a coalition of teachers, nurses, firefighters, law
enforcement people, district attorneys – and the list goes on – all lobby to the Legislature to change the rules so that no
municipality can bring a bankruptcy action,” state Treasurer Bill Lockyer said recently.
But what happens when a struggling city does not adjust pension obligations?
After giddily boosting pay and benefits for workers – lifetime health coverage for employees and their families after one
year of service, the 3-percent-at-50 formula allowing public safety folk to retire with potentially 90 percent of their
salaries, etc. – tax revenues in the little city of Vallejo plummeted.
It filed for bankruptcy in 2008, shedding more than $30 million in debt, renegotiating worker contracts and reducing
retiree health care obligations by some $100 million.
That wasn’t enough. Vallejo emerged from bankruptcy in 2011 and already is scrambling. The city failed to scale back
retiree medical benefits for all bargaining units during the bankruptcy and didn't even try to alter pension obligations.
Among the top costs, of course, are higher payments to CalPERS for retirement benefits.
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