I’d always assumed that one of the benefits to cities of filing for bankruptcy (which Stockton, California did June 28, for instance, in the largest municipal filing ever) is the opportunity it provides for the shedding or modifying the huge pension obligations that in so many cases were a main cause of the fiscal unraveling in the first place. Not so fast! From Reuters:
So government workers may have a constitutional right to their gilt-edged pensions? That sure isn’t how it works in the private sector. John Derbyshire is righter than he knows. . .
One big step Stockton is not expected to take is to attempt to dodge its pension obligations to city employees.
If it did, the city would have to confront the powerful California Public Employees' Retirement System (Calpers), which handles pension plans for many California cities and counties.
Calpers and unions around the country have made it clear they see a pension as an iron-clad right, one that's legally protected even in a bankruptcy.
Whether pensions are contract rights, which can be changed, or property rights, which are protected under the U.S. Constitution, has never been tested in court. [Emph. added]