Please consider California's Brown Raises Prospect Of Pension Cuts In Downturn.

California Governor Jerry Brown said legal rulings may clear the way for making cuts to public pension benefits, which would go against long-standing assumptions and potentially provide financial relief to the state and its local governments.

Brown said he has a "hunch" the courts would "modify" the so-called California rule, which holds that benefits promised to public employees can’t be rolled back. The state’s Supreme Court is set to hear a case in which lower courts ruled that reductions to pensions are permissible if the payments remain “reasonable” for workers.

"There is more flexibility than there is currently assumed by those who discuss the California rule,” Brown said during a briefing on the budget in Sacramento. He said that in the next recession, the governor “will have the option of considering pension cutbacks for the first time.”

That would be a major shift in California, where municipal officials have long believed they couldn’t adjust the benefits even as they struggle to cover the cost. They have raised taxes and dipped into reserves to meet rising contributions. The California Public Employees’ Retirement System, the nation’s largest public pension, has about 68 percent of assets needed to cover its liabilities. For the fiscal year beginning in July, the state’s contribution to Calpers is double what it was in fiscal 2009.

"In the next downturn, when things look pretty dire, that would be one of the items on the chopping block," Brown said.

Pension Cuts Are Coming

It's refreshing to hear a politician admit the obvious: Pension cuts are coming.

However, whether or not the cuts are "reasonable" is irrelevant in cases of bankruptcy. Bankruptcy is under federal, not state law.

Municipal Bankruptcy State Laws

Image placeholder title

The above map is from Governing.Com.

Municipalities located in states that are green, generally have a right to declare bankruptcy. Those in purple don't. There could be bankruptcy legislation at the national level that would supersede state constitutions and I am in favor of that.

Meanwhile, despite the enormous gains in the stock market in the past decade, CALPers is still only 68% funded, and that even assumes 7-8% returns into the future.

Illinois and Kentucky are much worse off.

Even 3% gains would devastate most pension plans. Steep actual losses are likely.

Translation: Things are dire and pension cuts are coming.

Municipalities will resort to bankruptcy if necessary, in states that allow it. Those states that do not allow municipal bankruptcy will be forced one way or another to do so.

Mike "Mish" Shedlock

Goodbye California, New York, Illinois: Blue State Exodus Will Accelerate

People are exiting "blue" states and the reason isn't the weather. The Trump tax cuts will accelerate the exodus.

Bankrupt Illinois Cities Forced to Cut Services to Fund Pensions

Multiple cities in Illinois are forced to cut police, fire departments and other city services to fund pension plans.

Illinois Governor Seeks to Sell State Buildings and other Assets to Pay Pensions

Governor Prtizker released details of his plan to save Illinois. He made three of three of the worst possible choices.

California Governor Declares State of Emergency After 7.1 Earthquake Hits

The strongest earthquake in 20 years hit southern California on Friday night.

Illinois Pension Benefits, Other Promises, and Insolvency

Let's take a momentary reprieve from Italian insolvency to discuss the sorry state of affairs in Illinois.

Mind-Boggling California Pension Crisis Gets Catchy Name ‘Silver Tsunami’

Pension deficits accelerate in California to "mind boggling" levels despite the rising economy.

Rejected: Central States Fund Proposes 60% Pension Cuts, Treasury Dept Says “Not Enough”

407,000 private sector workers are about to lose most of their pensions.

Global Pension Gap Expected to Hit $400 Trillion: US Leads the Way

The global pension gap of 8 nations is $70 trillion. The US alone is $38 trillion. By 2050 the total gap will hit $400T.

Hit to Unions Following Supreme Court Ruling Begins

Following a Supreme Court ruling, states are ordered to stop collecting millions of dollars in fees from public worker.