Should the city of San Diego file for bankruptcy? It has $45.4 billion in unfunded pension liabilities.

According to a policy brief published by the Foundation for Educational Choice San Diego faces “enormous budgetary pressures from the growing deficits in public pensions both at the state and local level.”  San Diego faces a total shortfall of $45.4 billion according to this article.  This amounts to $15,129 per person living in San Diego.  The $45.4 billion is made up of $7.95 billion for the county pension system, $5.4 billion for the city pension system, and “an estimated $30.7 billion share of unfunded liabilities for California state retiree benefits.”

Can you imagine this?  San Diego has its own problems with the county and the city unfunded public pensions but these together add up to less than half of its share of the California state retiree benefits.  How can San Diegans be held responsible for these unfunded pensions?  How can you tax the private sector where people have little or no pensions (I don’t have one) to pay for public employees who have extremely high pensions which are defined benefit plans?  Defined benefit means that these people get paid a set amount regardless of whether they paid in or if their investment has risen or fallen and the San Diego taxpayers get ripped off.

The article goes on to talk about SDCERS which stands for the San Diego City Employees Retirement System which cover around 20,000 employees.  For their retirement these employees get 3% of their annual salary times the number of years which they were employed.  For a 30 year employee this amounts to each one getting 90% of their salary for life regardless of how long they live or what the total pension investments have risen or fallen in value.

They go on to say that the main reason San Diego is stuck with these “extravagant” pension obligations is the “deals” that were reached in these collective bargaining session in 1996 and 2002 when the economy was obviously doing better.  These “deals” were presumably bargained for by the public unions and signed by the city in these good times.  But the article describes these pensions as “financial windfalls” for the city workers and they allowed these employees to double or triple what they would have received under the previous program!  What!  The former chief investment officer from the public pension system in San Diego collects a $174,000 a year pension.

How could San Diego obligate its taxpayers to pay for these things?  Whose minding the store?  Why should public employee unions be allowed to lobby and bargain with city officials and then obligate city taxpayers to pay for these pensions long after the officials have retired (with their large pensions)?  Sounds like there is a little Bell California in every city doesn’t it.

According to the LA Times these pensions will consume 50% of the city budget by 2025!  How can we let that happen?  I spoke in a previous blog about what a city exists for.  I reached the conclusion that a city exists for the benefit of its citizens.  A city’s primary  purpose is to provide services like water, power, police, fire, roads, lifeguards etc. that its citizens need to maintain the quality of their lives.  A city provides the services that we have come to expect from our civilization.  A city does not exist to provide unrealistic, unreasonable, and grossly inflated pensions to its employees.

But how will any city function if it pays half of its revenue to its employee pensions?  These employees bargained for and got these ridiculous pensions passed through their union lobbying.  The citizens have no such lobby.  The citizens did not and cannot bargain for better roads, schools etc. as they have no unions.  But the public unions did get these pensions and now poor San Diego will have to cut services massively or increase taxes dramatically on its citizens to pay for them.  How is this fair?

It is not fair but there is an alternative.  San Diego does not have to slash services, layoff massive numbers of employees, sell city property, or raise taxes drastically.  All of these options would place tremendous burdens on the citizens of San Diego.  It is true that these collective bargaining agreements operate as binding contracts and as of now San Diego is obligated to pay these unfunded pensions.  San Diego can’t get out of these obligations under normal circumstances.

The beauty is that chapter 9 bankruptcy will break these unfunded pension contracts.  A municipal bankruptcy will break all of these pension contracts and leave the city free to operate and engage in new contracts that are much more in line with what the city can afford.  No property will have to be sold and as I reported in two previous blogs, the bankruptcy court cannot interfere with the daily operations of San Diego at all.  San Diego can continue to operate normally, borrow money, pay employees, and build things as usual but it can do so without the burdens of these pension contracts.  There seems to be little or no down side to this.  Hooray for bankruptcy!

Other cities in America in similar situations should try it.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation or for any other advice about bankruptcy or debt at (619) 702-5015.   For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

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2 Responses to Should the city of San Diego file for bankruptcy? It has $45.4 billion in unfunded pension liabilities.

  1. Sam Martin says:

    I always admire the way you present your blog site posts.They are always so informative and neatly placed with the simplest of words used.Thanks a lot for sharing.

  2. Pingback: Stockton California gets close to filing chapter 9 bankruptcy. Largest city to do so yet! « FarquharLaw – San Diego Bankruptcy Attorney

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