March 21, 2010
Re: Pensions; Why Should Healthcare Be the Only Calamity on Your Mind, Today?
Further to Justin's post, in the matter of the Chapter 9 bankruptcy by the City of Prichard, Alabama, a judge ruled ten days ago that public employee retirees do not have any greater standing than other creditors.
A bankruptcy court judge denied a motion Tuesday that would force Prichard to pay its pensioners, saying they do not qualify as administrative claims -- or day-to-day obligations -- of the city.The judge gave the city until May 19 to file a reorganization plan.
Returning now to Rhode Island, asked on the Helen Glover Show a couple of weeks ago about the thought process of the all-powerful Speaker of the House on the matter of our under-water public pension system, former Cranston Mayor Steve Laffey replied,
I think actually Gordon Fox ... understands the depths of the problem. I think he's just going to play his game of roulette, also, where he's going to try to be in office as long as possible and he has to be beholden to the special interest public union leaders. And he thinks they control their votes. And so that's what he's going to do. He simply is just going to play out the game. And with $6.6 billion in assets, he thinks he can play it out until he gets out of office and leave it for somebody else to deal with.
Could Smith Hill leadership really harbor the notion that they could skate by this situation? Especially in view of the sharply escalating, budget-busting contributions that are required from the tax-payer as long as pensions are not addressed?
Alternately, could they be waiting for enough Rhode Island cities to declare Chapter 9 and for the fiscal situation on the state level to deteriorate so badly that they have to say to their public employee supporters, "Sorry, we have no choice but to ..." But to what? Whatever solution they may propose at that point, almost assuredly, it won't be as "nice" as the ones on the table now. And no one denies that those already stink on ice. Accordingly, though it might be tempting politically, would waiting for the disaster to actually strike really be such a wise course?
We'll have to watch the Prichard case closely. If the towering pension debt in Providence and other cities is only as strong as its weakest link, that weakest link may just have been identified. Love those Alabamans.
Posted by: Bill at March 21, 2010 9:58 PMLike all laws over which COngress has complete power, Chapter 9 is a very interesting law. For instance, when NYC had to consider it, Chapter 9 was amended.
Another thing to watch, all creditors in a "class" have to be treated equally. For instance, if the teachers enjoy much better pension plans than fireman, they all have to receive a similar hair cut. One of the stratagies in Bankruptcy is creating separate "classes" so that creditors (employees in this case) can be treated differently.
So far as I know, there is no requirement that the "Debtor" be a city or town. That means a "water district" or "fire district" could also file. I believe Chapter 9 uses the term "municipal government", I have no idea if a state would "qualify".
There have been relatively few Chapter 9 filings, so I doubt it is clearly understood. I understand that when it comes to dealing with union agreements, Chapter 9 is somewhat more favorable to the Debtor than Chapter 11.
I expect we may see nore of these. Donald Trump made it more respectable as "just another business tool". An example was Cumberland Farms going into 11 to renegotiate its relations with the Bank of Japan.
Posted by: Warrington Faust at March 21, 2010 10:12 PM