What lessons can government employees learn from previous municipal bankruptcies?

May 20, 2020

As some of you may know, when I’m not writing articles on MERA, making charts on the Board of Representative’s voting records, or running for office in special elections, I’m a bankruptcy lawyer, and spend much of my time working on municipal restructurings.

 

With the benefit of this experience, I submitted an op-ed to the Hartford Courant on what might happen if Congress passes, and Connecticut avails itself of, a bankruptcy law for states.  You can find it here:

https://www.courant.com/opinion/op-ed/hc-op-esses-connecticut-bankruptcy-coronavirus-0519-20200519-jbfw5uueknekhazl2a4nngu2qi-story.html

 

There is at least one lesson I’ve learned that there wasn’t space to emphasize in the article:  while pensions have historically been relatively safe in government restructuring proceedings, retiree health care is not.  In Detroit, for example, pensioners faced a pension freeze and nominal dollar cuts of no more than 4.5%, while retiree health benefits were reduced by about 90%—the same as other creditors holding what are known as “unsecured” claims (unpaid vendors and contractors, plaintiffs holding judgment claims, and so on).

 

So, if you are an employee of a government that is or is likely to be distressed, I would be extra careful about preparing for your health care benefits in retirement, even if the government has promised to pay such benefits.

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