My last post was motivated by an interesting article in the L.A. Times, written by Chris Megerian, Melody Petersen, and Dean Starkman, that discussed the recent ruling by Judge Christopher Klein, the judge in the Stockton, California Chapter 9 bankruptcy. As you may recall, the ruling put pension payments on the bankruptcy chopping block.
In that post I predicted that more municipalities would seek Chapter 9 bankruptcy protection due to unsustainable public retirement commitments. I suspect that Judge Klein’s ruling will add fuel to the Chapter 9 fires. And I am by no means the only one with that opinion. In the October 2, 2014 L.A. Times, the perspicacious Melody Petersen reported:
Financially pressed California cities might turn to bankruptcy as a way to cut their increasing pension costs after a judge’s ruling, experts said Thursday. Analysts from Moody’s Investor Services, a bond rating firm, said that Wednesday’s ruling by a federal judge considering Stockton’s case could open the door for cities to cut retirement obligations — once considered sacrosanct. In that ruling, Judge Christopher Klein said cities could walk away from their pension obligations — just as they can from other debts.
While I am convinced that other California cities are eventually going to seek Chapter 9 protection — Madhu Ravi’s analysis suggests that an Oakland bankruptcy is on the horizon — there is a very big city in Illinois that I am watching: Chicago is sitting on the pension obligation edge. If Chicago were to file, it would undoubtedly displace Detroit as the largest municipal bankruptcy in the country’s history. How likely is a Chicago bankruptcy?