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Analysis: B.D. Howard has been running a populist campaign to represent San Diego’s District 8, the city’s southernmost neighborhoods.
Part of his platform eliminates property taxes. Another piece calls for a voter referendum taking the city into Chapter 9 municipal bankruptcy to reduce its massive pension debt.
As part of an interview for this story, Howard pointed to the Bay Area city of Vallejo, which filed for bankruptcy in 2008, to show that cities could roll back pensions in bankruptcy.
But Vallejo didn’t roll back pensions for its employees. Instead, its proposed plan for emerging from bankruptcy explicitly avoided pensions. Pension and retirement system experts are unaware of any local government in the country that has gone after existing pension debts in bankruptcy.
Howard contends that the federal judge in the Vallejo case, Michael McManus, said Vallejo could roll back existing pensions; the city just chose not to do it.
Howard’s statement expresses that interpretation of McManus’ ruling, but those involved with the case say otherwise. The judge said the city could tear up its existing labor contracts with its unions.
“But the court has not ruled that Chapter 9 can be used to roll back existing pensions for either active or retired city workers, or that a city can erase any of its unfunded pension liabilities in bankruptcy,” said Harvey Leiderman, a former attorney for San Diego’s retirement system whose San Francisco-based firm is representing the largest bondholder trustee in the Vallejo case.
Marc Levinson, the Sacramento-based attorney representing Vallejo in the bankruptcy, agreed with Leiderman.
“The ruling establishing the standard for rejecting collective bargaining agreements did not have anything to do with pension benefits,” Levinson said.
Levinson added he didn’t recall the judge ever stating if Vallejo could roll back pension benefits one way or the other.
But the judge’s decision on contracts caused some to believe the door to pension rollbacks was open.
In the National Law Journal and pension blog, a Chicago-based municipal bankruptcy expert said the judge’s decision would be particularly important to cities with large unfunded pension liabilities, though the expert did not say the decision had a direct impact on pensions.
The Wall Street Journal article was an opinion piece by a former Orange County Register columnist who has written a book critical of public pension systems. The piece condemns Vallejo’s decision not to go after pensions following McManus’ ruling on contracts and implies Vallejo could have rolled back employee pensions, but blinked.
We’re stamping Howard’s statement misleading. Attorneys involved in the case don’t believe the judge’s decision stated that Vallejo could roll back pensions. We decided it didn’t reach the level of false, though, because the judge never specifically took a stance either way and, therefore, is open to some interpretation. Additionally, the three articles Howard cited imply the ruling could have affected pensions.
We took an extensive look at the question of how pensions might be affected in bankruptcy in February. Our determination:
It appears legally possible for a city to reduce pension benefits through bankruptcy. No one has tried it before, but someone will. That bankruptcy will be a costly war with an uncertain outcome.
Also, recent filings in the Vallejo case indicate the city hasn’t ruled out going after employee pensions if its current plan fails.
If you disagree with our determination or analysis, please express your thoughts in the comments section of this blog post. Explain your reasoning.
You can also e-mail new Fact Check suggestions to firstname.lastname@example.org. What claim should we explore next?
— LIAM DILLON