Mayor, City Attorney Respond to Bankruptcy Case

Both Mayor Jerry Sanders’ office and City Attorney Jan Goldsmith responded to my post this morning on the revelation that retired police and firefighters from a small city in Rhode Island have agreed to reduce their pensions in bankruptcy. That’s important because Sanders and Goldsmith have argued that pensions couldn’t be reduced through Chapter 9 to combat the idea that San Diego should explore bankruptcy,

Before we get to their answers, here’s a public service announcement. If you aren’t on Twitter, you missed a great debate this morning on the issue between me, Police Department attorney Paul Cooper, local think tank head Erik Bruvold, former Ethics Commission Chairman Gil Cabrera, political scientist Vlad Kogan, union leader Evan McLaughlin, mayoral spokeswoman Rachel Laing and Union-Tribune City Hall reporter Craig Gustafson. I’ve City officials, reporters and other political watchers had a spirited discussion on the news that retired police officers and firefighters in a Rhode Island city agreed to reduce their pensions through bankruptcy.

http://storify.com/dillonliam/new-story?awesm=sfy.co_SEk&utm_campaign=&utm_medium=sfy.co-twitter&utm_source=t.co&utm_content=storify-pingback” target=”_blank”>reproduced the discussion here and will address some of the points made throughout this post.

Goldsmith held strong to his opinion in an emailed statement. He said that if the agreement goes through retirees will have voluntarily agreed to reduce their pensions in bankruptcy. They could have done that any way outside of bankruptcy, he said.

But the major difference is that bankruptcy forces all groups to come to the table. The leverage of a judge enforcing a potentially worse deal could have compelled the retirees to agree to concessions they otherwise wouldn’t have.

Goldsmith agreed that bankruptcy provides leverage to negotiating pension changes, but said in the Rhode Island case the greater leverage was that the city simply ran out of money.

He added that the Rhode Island case and a bankruptcy in an Alabama city illustrate something he hadn’t previously made explicit: Pension reform is needed before a city can no longer pay its bills.

The cases, he said, “demonstrate the importance of pension reform before the pension problems gets unresolveable. It also illustrates that it is in retirees’ best interests to participate in some way in that reform.” (Goldsmith’s entire statement is long, but worth reading. I hope to post it separately.)

Sanders’ response was much less nuanced. Laing, his spokeswoman, called a comparison between San Diego and the Rhode Island bankruptcy “utterly ridiculous.”

“I’m not sure how many times or ways we can say it: Bankruptcy would have been — and continues to be — the wrong approach to solving San Diego’s fiscal challenges,” Laing said in an emailed statement. “The mayor’s more certain than ever of the wisdom of not spending tens of millions of taxpayer dollars gambling on an approach with dubious potential from a legal perspective — and one that would have resulted in years of litigation while doing lasting damage to San Diego’s credit, reputation and job-creation efforts.”

My take on all of this? It’s still fair to question if San Diego is in enough financial trouble to qualify for bankruptcy. It’s still fair to question the wisdom of spending millions of taxpayer dollars on bankruptcy lawyers. It’s still fair to question if San Diego would be able to force through a reduction in pension debts in bankruptcy.

But, assuming the agreement in the Rhode Island case holds up, it’s no longer fair to say pension debts can’t be reduced in bankruptcy. In other words, if civic leaders are going to argue that San Diego shouldn’t file for Chapter 9, they’ll have to tell us why their preferred solutions will fix the city’s financial problems better than a bankruptcy might.

Liam Dillon is a news reporter for voiceofsandiego.org. He covers San Diego City Hall, the 2012 mayor’s race and big building projects. What should he write about next?