Taxpayers need protection when municipalities go bust.

Local governments should structure themselves in a way that best meets the needs of their budget, taxpayers and public employees. And the state should give them the power to do so.

Contrary to popular belief, government-worker pensions are not untouchable, at least according to the federal courts. The federal judge in charge of the bankruptcy proceedings of Stockton, California, has ruled that city-worker pension debt must be treated like any other form of debt and could be adjusted under federal bankruptcy law. The ruling is a...