Forward Democrats! Union Sets Record for Biggest City Bankruptcy

John Ransom
Posted: Jun 28, 2012 12:01 AM

Forward! Stockton, California; move on forward, right to bankruptcy.

Can you take the Democrats with you? Oh, that's right: They are already there.   

Stockton, California will seek bankruptcy protection after negotiations with unions over benefits and workers' pay failed to avert insolvency by the city. But because of laws passed by California liberals aimed at entitling government union workers to inflated pay and benefits under most circumstances, look for more cities in California to seek the same remedy.

If you weren’t horrified by the case made in Madison, Wisconsin over union wages and benefits causing massive state and local budget deficits, you should be scared by the example in Stockton.

For more on this story, see Mike Shedlock's  Stockton Bankrupt; Unions Pension Death Trap for Cities to Blame

Because California isn’t Wisconsin. It’s bigger than that.  California, as measured by GDP, ranks as the 8th largest economy in the world. At $1.9 trillion it dwarfs Greece and is ranked above Spain. Its economy is larger than the economy of Russia.   

From the Washington Post:

“The city is fiscally insolvent and must seek chapter 9 bankruptcy protection,” Stockton said in a statement released yesterday after its council voted 6-1 to adopt a spending plan for operating under bankruptcy protection. “In addition to the bankruptcy petition, the city will file a motion with the courts to share information from the confidential mediation.”

The Post said that a bankruptcy by Stockton will make it the largest city to file for bankruptcy protection in U.S. history.

Thank God for the unions and Democrats protecting the middle class.

Without them, we might have something outrageous like fiscal solvency breaking out.

Stockton, an agricultural city of about 300,000 residents in California’s Central Valley, voted to pare the year’s budget by reducing benefits, pay and debt service on bonds.

“The new budget will suspend debt payments,” reports the New York Times, “cut employee pay and reduce retiree benefits, allowing this city of about 292,000 residents to continue providing essential services through the bankruptcy process.”

The liberal California Supreme Court ruled in 2011 that union pension, healthcare and other benefits are protected under the law, even when benefits aren’t promised in contracts. Instead, benefits in some cases are considered implied contracts, leaving cities with few options when it comes to negotiating during tough fiscal times, says Steven Greenhut, vice president of journalism at the Franklin Center for Government and Public Integrity. Increasingly, union benefits are forcing cities, especially in California, to consider bankruptcy as their only option to restore the fiscal health of cities.

Unions, of course, won’t take pay or benefit cuts unless forced to.

“Yet many state governments such as California struggle with endless budget deficits,” wrote Greenhut at “Unfunded liabilities to pay for pension promises for state and local public employees hit an estimated $3 trillion nationwide. Then there are the debts for the health-care promises that municipalities have made to their employees. Much of this is not honestly accounted for, so the real numbers are worse than the official ones.”

To put those numbers in perspective, the whole country of Greece is underwater on about $420 billion in debt. That's only 14 percent of just our unfunded pension promises for state and local workers. 

Hence the need for bankruptcy protection from the courts in order to keep vital services running at the state and local level. In the fight between benefits that you and I will never be entitled to but have to pay for, and keeping the garbage picked up and the police cars rolling, get which side the unions pick?

Indeed, some are arguing that state’s like Illinois and California have no choice but to consider asking Congress for an enabling law that would allow states to file bankruptcy in order to void the union contracts.

Greenhut cites an op-ed from former Florida Gov. Jeb Bush and former Speaker of the House Newt Gingrich who say that union contracts are the problem for states wrestling with budget deficits.

“[A]s with municipal bankruptcy,” writes Bush and Gingrich in the LA Times, “a new bankruptcy law would allow states in default or in danger of default to reorganize their finances free from their union contractual obligations. In such a reorganization, a state could propose to terminate some, all or none of its government employee union contracts and establish new compensation rates, work rules, etc. The new law could also allow states an opportunity to reform their bloated, broken and underfunded pension systems for current and future workers. The lucrative pay and benefits packages that government employee unions have received from obliging politicians over the years are perhaps the most significant hurdles for many states trying to restore fiscal health.”

And instead of politicizing the process by allowing the federal government to play favorites with their union buddies and federal bailout money, we ought to let taxpayers and elected officials in the state wrest back control from unelected union hot shots who use your tax money to buy favors from Democrats.          

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