12 September 2014

The Sun Isn't Shining in San Bernardino ...

... at least not for some unionized employees. Yahoo News report here that Bankruptcy Judge Meredith Jury has approved the city's motion to cut drastically its share of the cost of employee benefits for its firefighters.

A private employee, even one undergoing a Chapter 11 reorganization, as a practical matter could not do what San Bernardino will do. Congress, however, exempted cities in a Chapter 9 municipal bankruptcy from the restrictions it imposed on the power of private employers to modify collectively bargained agreements with unions.

This exemption for cities in bankruptcy strikes me as a fair one. As I argued in Municipal Bankruptcy: When Doing Less Is Doing Best (download here), increases in public employee benefits have far outstripped those in the private sector. Coupled with state laws like California's that prohibit any reduction in pensions, shifting the cost of OPEBs ("Other Post-Employment Benefits") to employees is one of a bankrupt city's few resources when it comes to reducing its costs of operations.

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