California Dreaming: Bankruptcy, Pensions and TaxesJames Hall, Contributor San Bernardino, a city of 210,000 about 60 miles east of Los Angeles, filed for bankruptcy protection on August 1. Since then, it has halted its bi-weekly, $1.2 million payment to Calpers, saying it wants to defer any payments to the fund until fiscal year 2013-2014. Calpers says the city is already $6.9 million in arrears since August 1. The San Bernardino bankruptcy is fast emerging as a precedent-setting case over how creditors, especially Wall Street bondholders and insurers, are treated in a municipal bankruptcy, because never before has a city seeking bankruptcy halted payments to Calpers or threatened its historical primacy as a creditor. Under Californian state law, the contract between Calpers and debtor cities is viewed as inviolate and has been treated as such by state courts. Unlike Calpers, other creditors have historically been forced to renegotiate or forgive debt to debtor cities. The concept of an inviolate obligation tied to public employee retirement payouts is a sacred cow that needs purging from law and, more importantly from populace endorsement. Notwithstanding, expressing such supportive government orthodoxy, that bastion of objective news as reported by the Sacramento Bee, writes on the pro-taxation argument of Jerry Brown: California tax vote start of national tax hike sweep. Revenue means taxes, and certainly those who have been blessed the most, who have disproportionately extracted, by whatever skill, more and more from the national wealth, theyre going to have to share more of that. According to Governor Brown the expanded role for government programs and, byinference, public employee unions, is never ending. Just ask the taxpayers who live in San Bernardino if they are paying enough. Next, ask the municipal bond creditors, who stand to lose significant capital from the forthcoming bankruptcy. A promise to pay a retirees health care coverage is essentially a kind of defined benefit plan, in which government pledges to cover a certain percentage of the cost of health insurance regardless of how much money it has actually set aside for this benefit. As the State Budget Task Forces recent report on California explains, right now workers covered in California by this retirement benefit are earning credits that should be financed to the tune of $4.7 billion a year, if California is going to have enough money to pay off this obligation over the years. But instead of pre-funding the benefit, California has chosen to pay for it on a pay-as-you-go basis, taking the cash for the health insurance premiums of retirees right out of its annual budget. Right now thats only costing the state $1.7 billion annually because of the limited number of retirees who qualify for the benefit. But over time more and more workers will qualify, and those workers will live on average decades in retirement, swelling the rolls of those whom California must provide health coverage for. Where in the present distressed economy are there new corporate employment contracts that include defined benefit plans? The old name is a pension. In the corporate world, IRAs and 401K are common. The dinosaur companies that accepted union contracts with future defined benefit obligations are out of business, either escaped offshore or are hanging on by their fingernails. Why should government employees have a privileged position, when the realities of further municipal bankruptcies are growing daily? It seems that Governor Brown forgets his own rhetoric. Populism, Progressives and Public Unions cites a quotation from the current California governor. Several unions have agreed to larger employee contributions for their members. Taxpayers are living with cuts and making sacrifices to deal with the reality of Californias budget crisis, state workers are going to have to do the same. Jerry Brown The Assembly Public Safety Committee today is considering one of the most noxious, special-interest pieces of legislation weve seen in a whileone that will endanger public safety, tread on the California constitution and reinforce the perception that some government workers are part of a special, coddled group thats exempt from the normal legal and ethical standards that are applied to other Californians. The Registry The rush to leave the state has Californians perplexed for solutions as long as the Sacramento progressive pols refuse to challenge the public union mafia. Those who remain will bear an even higher tax burden to feather the nests of the most unproductive elements in society, namely government. And everyone is going to have to realize that building roads is important, investing in schools is important, paying for the national defense is important, biomedical research is important, the space program is an indicator of the world leader all that takes money. Just maybe a bankrupt state and municipalities needs to reduce the size and scope of government itself. Original article archived here linkwithin_text=Related Articles: 