Item — HN Reader

The article is good, but has one big error: the statement that existing pensions are contractual obligations and must be paid.

Go back a few decades to the bankruptcy of Orange County California. Unions negotiated away a large part of pension obligations to members.

When (not if) the state of California goes bankrupt, those obligations will not go away entirely, but will be reduced through bankruptcy negotiations.

2 comments

The article is correct, in that the US bankruptcy code doesn't cover states. There is literally no legal way for a state to go bankrupt, and thus no way to force renegotiation of the pension contracts through bankruptcy court.

Of course the day may come when the state pension funds simply have no cash left and stop paying benefits, and the pensioners will then sue to enforce their contracts. It's hard to predict what might happen then. Unions might be strong-armed into accepting a cram down. Courts could order the legislative and executive branches to increase taxes or reallocate funds. Who knows?

Question: so counties are allowed to go bankrupt, but not states? States can not print money, and many states including Arizona where I live are coming up short paying for essential services.

That's correct. Counties and municipalities can go bankrupt under Chapter 9. http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/ch... There is no provision for states. It's an unprecedented situation so I don't think anyone can predict what will actually happen when they inevitably run out of cash.

hopefully, they'll greatly reduce the amount paid to people based on their final year's salary.

what a scam that is. Work extra hard that year and then for that extra work for every year of your life after that? wtf! what sap would agree to pay that?