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Municipal Bankruptcy Could Break Unions’ Stranglehold April 7, 2010

Posted by papundit in Uncategorized.
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It has not yet been tried in Pennsylvania, but eventually municipalities are going to realize that they can’t reasonably meet their obligations to the excessive defined-benefit pensions the unions have been demanding and the government has been mismanaging all these years.  What happens when push comes to shove?  Do the taxpayers get fleeced to maintain the plush retirement of union workers?

The Allegheny Institute offers the following summary of the current PA law on municipal bankruptcy:

In Pennsylvania the proceedings for bankruptcy flow through Act 47, the fiscal distress law, and authorities are prohibited from filing for Chapter 9.

That being said, bankruptcy may not be as harsh or draconian as one might think.  A municipality cannot be forced to liquidate assets to satisfy creditors, and a judge is prohibited from interfering with the day-to-day business of the municipality.

Municipal bankruptcy may be a vehicle through which municipalities begin to deal with pension obligations and other legacy costs that have become too burdensome.  The Pennsylvania Constitution prohibits the revocation of pension benefits through laws or ordinances, but this likely would not apply to proceedings before a bankruptcy judge.  A recent high profile case in Vallejo, CA dealt with the issue of whether collective bargaining agreements and constitutional provisions on contracts would hold in a bankruptcy proceeding.  The court held that they would not, noting that when a state permits municipal filings it is valuing the benefits of bankruptcy for its municipalities greater than its state laws.

Given the fact that public sector unions have demonstrated their resistance to pension reform in the recent effort to make incremental changes to municipal pension, municipalities in Pennsylvania may be advised to explore Chapter 9 as a way to get contractual changes in post-employment benefits.

You can visit the Pennsylvania Public Employee Retirement Commissionn (PERC) website for more details on PA pensions.

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