San Diego Mayor: Bankruptcy Will Not Wipe Away Pension Obligations

San Diego Mayor Jerry Sanders reminds us that a Chapter 9 bankruptcy will not erase San Diego's problems:

Bankruptcy cannot be used to void employee pension benefits once they are vested, which occurs the first day of employment. Our state Constitution protects those benefits.

No city or county has ever voided pension obligations through bankruptcy. It didn’t happen in Orange County. It’s not happening in Vallejo. Instead, bankruptcy would allow renegotiation of the labor contracts that took effect last year and include the 6 percent employee compensation reductions. They are helping to solve our financial problems, not contributing to them.

Any court ruling that voided vested pension benefits would almost certainly be appealed – costing the city more time and money – and then be overturned by the U.S. Supreme Court.

Labor leaders and their lawyers know the threat of bankruptcy is empty. It gives us no leverage with them in negotiations.

What's needed is a change in the federal bankruptcy code to allow a judge to cut benefits.