California's Public Pension Disaster

Why is the California Supreme Court inventing new rights for state retirees?

As the pension and health-care benefit crisis sweeps across the nation, some states are seriously dealing with these multibillion-dollar problems that threaten public services and treasuries. And other states remain in deep denial. California, to no one’s surprise, is moving stridently in the wrong direction.

The tiny state of Rhode Island, for instance, faced enormous pension liabilities. Its state system was about 40 percent funded and on the brink of collapse. The Legislature and governor last month reformed the pension system by shifting to a hybrid pension plan (rather than a pure defined-benefit plan), suspended cost-of-living raises for retirees and boosted the retirement age. The reforms reduced benefits for current employees.

Sweeping reform was passed in a union-dominated state, where Democrats control even bigger legislative majorities than in California. Time magazine called Rhode Island “The Little State That Could.”

By contrast, California is “The Big State That Can’t.” Or maybe the right word is “won’t” given that there is no real reason that California leaders can’t adopt similar reforms if they had the desire to do so. California politicians’ childish refusal to deal seriously with this massive problem has long been evident in the union-controlled Legislature, where even no-brainer proposals to, say, strip pensions from convicted felons, go nowhere. Gov. Jerry Brown at least pretends to offer pension reform even though he refuses to use any political capital to push it ahead. And now the judicial branch has gone one better and actually expanded the cost of benefits to California agencies.

Just as Rhode Island is reducing benefits for current public employees and retirees, the California Supreme Court is inventing new rights for state retirees found deep within the penumbras of the state constitution. In a unanimous decision last month, the state high court has made it virtually impossible for municipal governments to reduce “non-vested” health-care benefits for retired government workers.

There are “vested” benefits and “non-vested” ones. Vested benefits are guaranteed by contract. Under California law, they must be paid no matter what. They cannot be reduced unless the employees and their unions agree to such reductions. That has put California in a bind with regard to pensions. Governments can’t afford them. The economic assumptions upon which they were based had more to do with politics than economic reality, but the courts treat these pension contracts as if they were etched in stone and brought down from the mountain by Moses.

Law is different in other states, and Rhode Island is an example where legislators believe that they will be able to limit vested benefits and pass court muster, although the unions there will almost certainly challenge the latest reform.

But even in California, it has long been accepted that non-vested benefits, which are non-contractual and not guaranteed, can be changed. There’s no long-term promise inherent in such benefits. Typically, government retiree medical benefits fit into this category. Virtually no retiree in the private sector gets these deluxe health-care freebies because they are so expensive they would eventually destroy any company stupid enough to grant them.

These health-care promises may impose an even bigger potential financial problem on governments than their overly generous pension promises. As reporter Ed Mendel of the CalPensions Web site reported, “Unlike pensions, which are usually a fixed cost with some adjustment for inflation, retiree health care can be an open-ended promise to pay for services, whatever the cost. Again unlike pensions, retiree health care is usually ‘pay as you go.’ Most government employers are not setting aside money to invest, presumably paying for much if not all of the retiree health care promised current workers in the future.”

Faced with this retiree medical issue, Orange County supervisors in 2007 came up with a reform that reduced the county’s liabilities. It received the support of the Orange County Employees Association, which championed the reform as proof of its willingness to be cooperative in cost-reduction efforts.

Essentially, the retirees and the existing county workers were placed in the same risk pool for medical benefits. Because retirees are older, the health-care costs for them are higher. So the county was subsidizing them. This was never an obligation, but was something the county as an employer provided as a benefit. After the reform was passed, retirees had to pay an extra 200 or 300 bucks a month, but they still receive a Cadillac health-care plan at an extremely modest cost.

The retiree association sued. The case made it to the state Supreme Court, which went beyond the wildest dreams of even the most devoted union official: it found that even non-vested benefits might have the weight of vested benefits. “We conclude that a county may be bound by an implied contract,” the court ruled. This is the equivalent of finding a right that no one ever saw before. Another court will have to decide whether such an implied contract exists in the Orange County case, but the precedent is set—unions will have a powerful new weapon to stop any possible reduction of benefits anywhere in California.

Orange County Supervisor John Moorlach told me he was shocked to find the court display “such a bias in favor of public employees” and so unwilling to help resolve the state’s “financial conundrum.” The ruling leaves only more drastic options, such as ending retiree medical plans in their entirety, or slashing the size of the government work force or reducing salaries for public employees. As the money runs out, the options only become grim.

Wouldn’t it be nice if California’s legislators, governor, and courts rolled up their sleeves and behaved like their counterparts in Rhode Island? Then again that would take a level of political maturity not seen in this state for a long time.

Steven Greenhut is editor of CalWatchDog.com.

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  • Almanian||

    Fuck California.

    We Will Never Forget.

    That is all.

  •  ||

    Profound. Thanks.

  • ||

    Holy shit you're tedious. If you don't like what he has to say, go read a different fucking website, you passive aggressive piece of human garbage.

  • EDG reppin' LBC||

    Yeah, fuck Michigan, too! Seriously though, California used to be an innovator in culture, law, finance, and governance. There are still vestiges of this history, notably Silicon Valley. But, sometime in the past 40 years, it took a left turn (I blame the hippies). Now the Golden State is a leading innovator in self-destruction.

  • Paul||

    Yeah, fuck Michigan, too! Seriously though, California used to be an innovator in culture, law, finance, and governance.

    They still are! There's nothing in the word 'innovator' which implies "good".

  • Almanian||

    I blame Bush

  • ||

    Michigan may be screwed in general, but when it comes to pensions, it's one of the few states to move state employees to 401K style defined-contribution plans:

    http://articles.businessinside.....nsion-plan

  • wareagle||

    whatever. CA shapes things happen in much of the rest of the country. Never mind that is highlights the folly of Team Blue; that is just a bonus. Maybe the recall people in WI should take a closer look at CA before they become it.

  • ||

    The ruling leaves only more drastic options, such as ending retiree medical plans in their entirety, or slashing the size of the government work force or reducing salaries for public employees.

    What's the conundrum, chum? These all sound like fine ideas.

  • ||

    Next they'll undoubtedly declare a "right" to be bailed out by the entire country.

  • ||

    The solution to SEIU and other government employee union is ALWAYS more tax on the wealthy. Their definition of wealthy keep on trending down. By next year, it will be anyone not employed by the government making more than 60k, and they deserved to be taxed 150%.

  • EDG reppin' LBC||

    By next year, it will be anyone not employed by the government making more than 60k, and they deserved to be taxed 150%.

    Shhhhhhhh... you're giving them ideas.

  • JoJo Zeke||

    NYT: Wanting smaller government is kinda racist, or something

    This is how they'll claw and bite for every last drop of blood and scrap of flesh, before finally (grudgingly) admitting the taxpayer corpse is well and truly disemboweled. Guaranteed.

  • wareagle||

    that headline contains a malicious truth about proggies. They won't say so out loud, but their actions speak to a clear conviction that some people (read: minorities) do not have the capacity to take care of themselves w/o the help of govt.

  • ||

    Why be satisfied with just the milk from the cow when you have a chainsaw, charcoal, matches and a Weber?

  • ChrisO||

    The California crash is going to make Greece look like small potatoes.

  • Canman||

    The best we can hope for is that they'll be an unignorable bad example.

  • Speaking of Disaster||

    This, whatever the hell that thing is, looking older than my dear ma, is playing the half time show.

  • WTF||

    Good reason to miss the halftime show.

  • ||

    Whatevs. You know you always wanted to feel what it would be like to get a handjob from a mummy.

  • Nancy Pelosi||

    "PRESENT!!!"

  • Sevo||

    Only if they can prop her upright long enough for a take.

  • ||

  • ||

    That's not really fair. She was hot when she was young...or was she?

  • wareagle||

    not really...always gave me the impression that a partner would have to double wrap beforehand and go through a radiation exposure bath afterward.

  • QuietDesperation||

    Everyone under 50 said "WTF?" and everyone over 50 said "Who?"

    Madonna? Seriously? Was she the only one who returned the Superbowl's calls or something? Not that I give a gnat's fart about the Superbowl or anything to do with the corrupt thuggery (now with buggery!) that is "professional" sports, but still.

  • ||

    They ought to get the Grambling and Southern University bands to have a march-off.

    Nobody watches the halftime show anyway, do they? I'm usually settling up bets, figuring out where to put my money on the second half props and eyeing who I'm gonna try to hook up with after the game.

    Oh, and drinking. Lots of drinking.

  • chris||

    The retiree association sued. The case made it to the state Supreme Court, which went beyond the wildest dreams of even the most devoted union official: it found that even non-vested benefits might have the weight of vested benefits. “We conclude that a county may be bound by an implied contract,” the court ruled. This is the equivalent of finding a right that no one ever saw before. Another court will have to decide whether such an implied contract exists in the Orange County case, but the precedent is set—unions will have a powerful new weapon to stop any possible reduction of benefits anywhere in California.

    The Brezhnev doctrine applied to the interest of the public sector elite; always going forward in conquering and subduing the private sector, not an inch back.

  • Raston Bot||

    Even though a GOP-led Michigan is about to seize a Dem-controlled Detroit, there is no chance a president will enforce pension reform on California right after the Federal Reserve Bank secretly gave $7.77 TRILLION in loans and guarantees to Bank of Amerika, JPMorgan, Shitibank, Government Sachs, RBS, et al.

    The fools buying CA debt know the rest of us will guarantee that debt b/c our pols have no backbone and we'll continue to elect them.

  • ||

    Soon enough gravity will be considered unconstitutional

  • PermaLurker||

    Don't you know gravity violates the ADA by not accommodating obese and clumsy people?

  • 16th amendment||

    Gravity is fair and in line with the 5th and 14th amendments. All objects accelerate at the same rate. Heavier objects have a larger total gravitational force, but there's more mass to accelerate, so g turns out to be the same 9.8 m/s^2.

  • ChrisO||

    The solution? Nuke it from space and hope the spores don't leak any further.

  • kinnath||

    Where is Lex Luther when you really need him?

  • chris||

    He has permanent arching duties against the most retarded undefeatable entity in the universe, so unfortunately not available.

  • Raston Bot||

    I saw him outside Otisburg a while back.

  • Sevo||

    "Wouldn’t it be nice if California’s legislators, governor, and courts rolled up their sleeves and behaved like their counterparts in Rhode Island?"

    When pigs buzz the state capital.

  • ChrisO||

    They don't need to fly over it. They own it lock, stock and barrel.

  • ||

    IRT California, there's been a movement by the elites in LA and SF to disassociate themselves with the rest of the state. They want the coastal area (except San Diego and the parts north of the Bay Area, and want to split off from the uncultured boobs in the central valley and high desert.

    First off, the central valley feeds a good share of the nation, so that would be fine with me. Second, all of the water that runs to their precious coast comes through here. I would just love to see the look on those smug assholes' faces when we cut their canals off at the border and actually use it to irrigate fields again. I', sure the almond farmers who lost their water rights because of the state and federal EPA rulings would also be happy their land will be profitable again.

    And with San Diego, we could enlarge the deepwater port there and accommodate plenty of ships that don't want to pay the exorbitant dockage fees in Long Beach or San Fran.

    IOW, fuck (parts of) California.

    And fuck Michigan, too.

  • wareagle||

    aren't the coasters the same self-serving smuggies who declared a good chunk of farmland off limits due to some obscure fish?

  • ||

    That was my reference to the almond farmers. Mot of them (in the SJ delta) lost their water rights due to the delta smelt, a sardine-like fish.

    Funny how protecting it, an effort spearheaded by Nancy Pelosi btw, has not only caused a dust bowl on the west side of the valley and an estimated $2.2B in lost revenue, but has also greatly contributed to a steep rise in almond and pistachio prices.

    The farmers affected have either resorted to buying rights from people who own land in mountainous areas that are not arable or have had to plow under their orchards...evidenced by all of the dust storms on I-5 from the base of the grapevine pretty much to Coalinga.

    And to make matters worse, the fucking farmers have canals running through their land but are forbidden from accessing it as it gets pumped to the coast to prevent the saline level of the water in the east bay from getting "dangerously high" for a fish that is about as useful as my tits.*

    *Working with farmers in the valley almost every day has made me pretty passionate about this, so sorry for the long rant. I will now go kick a puppy.

  • The Unborn||

    So everything has a right to live except us.

  • ||

    According to the EPA, yeah.

  • The Unborn||

    Forgive them, Father, for they know not what they do.

  • ||

    Anybody want some Kentucky Fried Piping Plover?

  • ||

    Smelt > Farmers
    Smelt < Unions

    ^ farmers must unionize before the smelt figure it out first.

  • Appalachian Australian||

    And this is all via an injunction from a federal judge.

  • Almanian||

    You still mad about last weekend, sloopy?

    HAHAHAHAHAHAHAHAHAHAHA!

  • ||

    Yes, I am. I thought for sure the Buckeyes would make it over 3000 days between scUM wins.

    That's fine. We'll beat your ass twice in basketball and then beat your ass next year in the game.

    O-H...

  • Concerned Citizen||

    I-O

    We're still fucked, over SB5. My daughter's former sitter said her neighbor, a state employee, spent a month in the hospital due to a blood clot. Total cost to state employee - $175. Cost to former sitter who had a mole removed from her son's nose - $1,800.

  • ||

    A couple of friends that used to live in CA always said that LA and SF should be their own states since they were so out of touch with the rest of the state. They always expressed frustration with the need to constantly fight the stupidity.

  • QuietDesperation||

    Why? OK, come in close and I"ll let you in on the big secret. Ready?

    BECAUSE THEY DON'T FUCKING CARE!

    Stop looking for Reason (heh heh) in the actions of anyone in the government. They just want the money, any money, and the power, any power. They will suck whatever dick ejaculates the most cash. The psychologists who say politicians are mostly psychopaths are absolutely correct.

    If the state collapses into civil unrest or open armed rebellion, they just take off through whatever bolt hole that have set up.

    They. Don't. Care.

  • cynical||

    "they just take off through whatever bolt hole that have set up."

    I doubt they even planned that far ahead. They're fools, in every sense. Scorpion and the frog.

  • ||

    And some states are actually well, or even overfunded in their pension plans. California is of course... A hideous nightmare. Last fiscal report we gtot, state of WA LEOFF system is otoh well funded. Considering the grossly irresponsible legislature we have,that's amazing ... Granted

  • wulfy||

    "As the money runs out, the options only become grim."

    Bring it on. I want to see whiny public parasites self immolating on the capitol steps. Molotov cocktail-wielding union thugs getting their fuckin heads blown off by police with shoot to kill orders. It has to happen to get rid of the dead-enders on the left who would rather everybody die than capitalists earn more than lazy stupid public employee shitbags.

    Fuckin bring it on.

  • ||

    I also wonder why anyone seems to care about "fixing" it now. Who cares? They are going to drive it all off the cliff as fast as they can but the outcome is a disaster for the state government, not the rest of us.

    yes, they will eliminate all the public jobs and renege on all the public pensions and close all the public schools but WTF do I care??

    Sounds pretty good to me actually. Carry on, Sacramento, carry on.

  • DK||

    I agree. I live in CA and can't wait to see what happens when it all comes crashing down! Not like it's gonna be long before the same thing happens at a federal level...

  • ChrisO||

    You might want to remember that the police are union members too. I wouldn't assume they protect the public from their union brethren.

  • first||

    Meet Silvie - a crazy, lanky, fun girl from Prague who lives life to the maximum.

    Silvie is the ultimate free-spirit and not one to follow the rules! For example, you may have noticed Silvie prefers a more natural look. She tells us that she loves her bush, and says it makes her feel like a lioness; raw and animalistic. Silvie’s lifestyle reflects her unconventional personality, not only is she bisexual she is also a naturist.

    She has a typical fashion models body: long skinny arms, long legs and a petite structure but she still has a full bust and curves - which is very rare, a rare gem you could say. All blessings from her mother apparently!

    Nothing is taboo when it comes to Silvie!

  • ||

    As a retired California State Employee now on Medicare, I think the only practical health care solution is single-payer health care for everyone. For those who remember, single payer legislation made it to the governor's desk twice, where it was vetoed both times. I hope it will be different with a Democratic governor.

  • 16th amendment||

    You want more socialism?

  • 16th amendment||

    You want more socialism?

  • Gambol Lockdown||

    Yes! Twice as much.

  • cynical||

    Good point. Death panels would solve California's budget issues quite nicely.

  • ||

    "Faced with this retiree medical issue, Orange County supervisors in 2007 came up with a reform that reduced the county’s liabilities. It received the support of the Orange County Employees Association, which championed the reform as proof of its willingness to be cooperative in cost-reduction efforts.

    Well of course. The employee organization socked it to retirees who have no representation and at the same time saved their dues paying members some money.

    Co-operation? If you rob Peter to pay Paul you will always get Paul's co-operation.

  • Josh||

    Is it just me or does the "no-brainer" idea of stripping convicted felons of their pension sound like the kind of asset-forfeiture that none of us really likes about the drug war? Why would a felony conviction require you to give up your pension? If I get convicted off a felony I don't have to forfeit my 401k, do I?

    Don't get me wrong, I like Greenhut, but that little blurb didn't make sense from my libertarian perspective.

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