Judge Bars San Jose from Imposing Voter-Approved Pension Cuts; Hollow Victory for Unions

On December 24, a state court judge barred the city of San Jose, California, from imposing voter-approved pension cuts on current municipal workers.

San Jose Mayor Chuck Reed, a Democrat, encouraged voters in his city to back municipal pension cuts he proposed as part of last year's Measure B, which drew 70 percent support at the polls. The unions challenged the measure, leading to Judge Lucas' ruling in Santa Clara County Superior Court. Her decision is likely to be appealed.

In her "tentative" ruling, dated from last week but publicly released on Monday, Lucas said the city was entitled under the ballot measure to cut workers' pay to save money, but she held that vested pension benefits were protected by state law and thus off limits.

Reed is pressing for a statewide ballot initiative next year that would give cities across California the authority to reduce pension benefits.

In a statement, Reed welcomed the judge's ruling on pay cuts, but added: "Unfortunately, the judge's decision to invalidate certain portions of Measure B also highlights the fact that current California law provides cities, counties and other government agencies with very little flexibility in controlling their retirement costs."

Hollow Victory

The pension ruling was hailed by union advocates but not the wage cut ruling. Both sides are likely to appeal aspects of the ruling. Should the ruling stand as is, unions will come to regret their victory.

Voters Had Enough of Unions

Reed will press the matter further, in a statewide initiative. And sentiment suggests voters have finally had enough of unions.

However, one must expect the teachers' unions, the police and fire unions, and every other public union in the state to spend massive amounts of money hoping to defeat the proposition.

For California public-union sentiment details, please see Voters Take Negative View of Labor Unions; Liberals in Favor of Strikes (Until Strikes Happen); Aging Population an Anti-Union Force?

Should Reed's initiative pass and be struck down by the courts, Reed can shove it straight down the union's throats by declaring bankruptcy.

Unlike the mayoral economic illiterates in Vallejo and Stockton (who could have and should have slashed pension benefits in bankruptcy), it's pretty clear Reed would do just that.

100% Certain Pensions Not Sacrosanct

Given rulings in Detroit, Michigan; Central Falls, Rhode Island (see Central Falls Set to File Bankruptcy Exit Plan; 50% Pension Reductions, 40% Slash in Police and Fire Budgets Coming Up) and numerous cities in California, it is 100% certain that federal bankruptcy laws override state constitutions. In other words it is 100% certain that public union pensions are NOT sacrosanct.

One way or another pensions must be cut, and will be cut. But how?

Unions can help decide the nature of the cuts, or they can fight them every step of the way only to have cuts crammed down their throats in bankruptcy court. Unions being what they are, will no doubt choose to be force-fed cuts in numerous bankruptcies across the nation.

Unfortunately, force-fed across-the-board cuts in bankruptcy court are not the fairest thing to do. Nor is it fair to ask taxpayers to pick up the tab, given the threats, coercion, vote buying, and backroom deals under which politicians rewarded their friends and themselves jobs with ridiculous pensions.

For further consideration of the fairness aspect, please see Mish Template for Fair Public Union Pension Settlement.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com