At a time when Senate Majority Leader Mitch McConnell has offered up state bankruptcy as a distant option that would require changes to federal bankruptcy laws to happen, the California Supreme Court is preparing to hear the latest in a case this week on a rule change that could offer at least some states flexibility on their pension costs.
Oral arguments are set for May 5 in a case that could re-examine the so-called California rule for calculating public pension benefits, which has been adopted by nearly a dozen other states. In total, 34 states follow some kind of contract rights approach to public pensions that says they cannot change benefits for existing employees or retirees after employees are hired.
In Illinois, among the states with the largest pension deficits, the state Constitution makes reducing public pension benefits impossible.
These legal protections are important for public employees who have negotiated for their benefits over decades. But given the extent of the current crisis, and the fact that politicians for years have been unwilling or unable to address unfunded pension liabilities in a wide range of states, it is time for more flexibility from all sides.
There has to be a way for all the stakeholders in state pension funds to address the reality of their situations and begin the process of changing the laws that would give them the flexibility they need. And the federal government also must step in to help states whose budgets have been battered by the crisis. Bankruptcy is not a solution.
