The State Worker

Chronicling civil-service life for California state workers

August 23, 2012
Column Extra: Expert discusses pension law versus bankruptcy law

With just 400 to 450 words for our weekly State Worker column, much of what we learn each week never sees print. Column Extras give you some of the notes, the quotes and the observations that inform what's published.

In reporting for today's column on the coming fight pitting pension law against bankruptcy law, we spent about 20 minutes on the phone with professor Douglas Baird at the University of Chicago's Law School, discussing what lies ahead for governments, bondholders and employees. Here are a few snippets of what Baird said:

On how municipal bankruptcies challenge a lender's ability to collect:
There are strong limits on what courts can do to affect day to day operations of a municipality in bankruptcy. When talking about municipalities, what does it mean if one of them refuses to pay?

If you lend me money and I don't pay you back.... You can go to the clerk of the court, seize my assets and get proceeds from the sale of those assets.

But if it's a municipality, what exactly to you do? Sure, you can sue and the court will say the municipality owes the money, but how are you going to get the money? Buildings, for example, don't belong to municipalities. They're considered public assets. They don't belong to the city. So your asset seizure options are limited.

On how bankruptcy law might open the door to altering pension contracts:
The question that hasn't been answered yet is to what extent can you change or modify those obligations through the magic of bankruptcy? Does bankruptcy law give you the power to change those? ...

Bankruptcy doesn't give you a pass to walk away from obligations. It's simply a device that allows everyone to have a come-to-Jesus meeting and recognize reality.

Let's say you have pension obligations of 100, and assets worth just 50. You've got to do something about that. ... As a general matter, if it's a pension obligation that's vested, it's extremely hard to touch. There's a difference between someone nearing retirement and someone ... who is just starting their career. ...

Let's not forget: If you make a promise to someone you're supposed to keep it. Bankruptcy law just allows you to ask, how can we make the best of a bad situation?

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About The State Worker

Jon Ortiz The Author

Jon Ortiz launched The State Worker blog and a companion column in 2008 to cover state government from the perspective of California government employees. Every day he filters the news through a single question: "What does this mean for state workers?" Join Ortiz for updates and debate on state pay, benefits, pensions, contracts and jobs. Contact him at (916) 321-1043 and at jortiz@sacbee.com.

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