SAN FRANCISCO (KCBS) – The decision by a federal judge on Tuesday to allow Detroit to formally enter bankruptcy could have major implications for bankrupt cities and the pensions of public workers in California.
U.S. Bankruptcy Judge Steven Rhodes ruled that since pensions are like contracts, they aren’t immune to being changed in a public bankruptcy, so Detroit can cut its municipal pension plans.
The case is being closely watched by cities like San Bernardino, which was ruled eligible for bankruptcy back in August. The city has been in a battle with the California Public Employees Retirement System, or CalPERS, which has accused the city of filing for bankruptcy to avoid paying its pension obligations.
The ruling also has political ramifications in California, as San Jose Mayor Chuck Reed touts a statewide ballot initiative on pension reform. Reed’s proposal would give local governments more power to negotiate reductions in pension benefits.
The Michigan case is just one ruling and it is still unclear if it will have any effect on how a judge may rule in the San Bernardino case. But many experts following the cases have said that it does put public pensions up for grabs, when it comes to cities trying to get out of insolvency.
You can hear Phil Matier’s comments Monday through Friday at 7:50am and 5:50pm on KCBS All News 740AM and 106.9FM.
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