Since last fall, talk of municipal bankruptcy has wormed its way back into public debate at the city of San Diego.
Mayor Jerry Sanders and City Attorney Jan Goldsmith decided they’d had enough. Last month, both dismissed the idea — and Sanders used particular vigor — by saying it distracted the city from its real financial problems. Besides, they argued, it would cost as much as $300 million and couldn’t affect the city’s most crushing debt: the $2.1 billion it owes for employee pensions.
“You can’t touch the pensions, which is the big nut,” Sanders said in an interview. “Why not use that $300 million to balance the budget in the long term instead of continuing this talk about there’s an easy solution out there? I think people who say that either don’t understand it, or they’re demagoguing.”
The issue is important. If San Diego can’t do anything about pensions in bankruptcy, is it even worth discussing? Especially since Wall Street flips out any time a city mentions the word.
I set out to explore the question: Can a bankrupt city reduce core pension benefits that have been guaranteed in the past?
I started with Goldsmith’s argument, which the mayor used as the foundation for his opinion. Goldsmith says pensions can’t be touched.