By Dale Kasler
Published: Tuesday, Dec. 3, 2013 – 9:13 am

It was a gold-plated promise: A career in government meant a safe and sound pension, no matter what.

All that may have changed Tuesday. In a case with major implications for California, a judge in Michigan ruled that the bankrupt city of Detroit can impose cuts to its municipal pension plans.

The ruling comes as a bankrupt California city, San Bernardino, edges closer to a possible legal showdown with CalPERS over the sanctity of public employee pensions. Although the decision in Detroit doesn’t directly affect what happens in San Bernardino, legal experts said it will strengthen the California city’s hand as it tries to reduce its multimillion-dollar pension obligations.

In any event, the Detroit ruling was a milestone. Experts long suspected that cities could use bankruptcy to force reductions in their pension expenses, but until now they’ve never had a court’s blessing. Other cities that filed for bankruptcy protection – notably Vallejo and Stockton – have shied away from a confrontation over the issue, choosing instead to continue making all their pension contributions.

Now U.S. Bankruptcy Judge Steven Rhodes has said cities in bankruptcy protection can go after pensions. For San Bernardino – openly chafing over its $24 million-a-year CalPERS bill – that could represent a big victory. The judge hearing the San Bernardino case isn’t obligated to follow the Michigan ruling, but is likely to look to it for guidance, said James Spiotto, a bankruptcy lawyer in Chicago who’s following both cases.

Bottom line: It’s no longer realistic to assume public pensions are inviolable.

“It’s a wake-up call to everyone who’s been saying this is sacred and you can’t touch it,” said Karol Denniston, a San Francisco bankruptcy lawyer.

Aside from the legal consequences, the ruling could alter the political climate surrounding public pensions in California. Denniston has advised San Jose Mayor Chuck Reed, who’s promoting a statewide ballot initiative that would give municipalities greater freedom to cut pension costs.

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