Pension Crisis

California Supreme Court Dodges a Hard Call in Pension Ruling

One pension-spiking tool can be scaled back now, but the California Rule remains intact.

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Gov. Jerry Brown
Hector Amezcua/ZUMAPRESS/Newscom

The California Supreme Court may have saved taxpayers some money today, but it also nimbly dodged the question of whether public employees' pension benefits can ever be scaled back.

The ruling leaves intact what is known as the "California Rule," a series of court precedents that have set up a legal regime where the state and its municipalities are only able to alter pensions benefits in one direction: more. Even as pension obligations threaten to bankrupt cities and even the entire state, courts have consistently ruled that pension benefits for employees cannot be scaled back once they have been offered.

In this particular case, the state's Supreme Court was asked to determine whether local governments could end the practice of "airtime purchases." This is the pension-spiking practice where public workers were permitted to "buy" an additional five years to attach onto their total time as a government employee. So, for example, a firefighter who worked for 20 years could be credited as working for 25 years, which jacks up the total pension that firefighter will be paid in retirement.

In 2011, Gov. Jerry Brown, who saw the state's pension crisis ballooning, pushed through reforms allowing local governments to end this practice if they wanted. This prompted Cal Fire Local 2881, a union representing firefighters, to sue on the basis that this reform counted as an impermissible rollback of pension benefits.

Today the Supreme Court ruled unanimously against the fire union. That's good news for anybody who cares about the state's fiscal sustainability. But the California Rule remains intact. The court ruled that airtime purchases are not contractually protected benefits under the state's pension regulations. Thus, the state can alter the rules for airtime purchases at it sees fit without violating the "California Rule." It's not a contractual benefit—it's a bonus.

That means the Supreme Court wasn't obliged to decide whether the "California Rule" is a constitutionally protected right of public employees. And so they punted that part entirely. The old precedents are still in place, and the state and its municipalities are stuck: They're unable to reduce what their financial commitments, even though the state's pension fund may be underwater and carrying more than $360 billion in unfunded liabilities.

Giving governments a chance to cut one type of pension spiking is a win. But keeping the California Rule intact is a loss.

Bonus link: Just last week, Steven Greenhut predicted the Supreme Court would "create yet another unresolved mess" with its ruling. He was right. Read his piece here.

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  1. The California Supreme Court may have saved taxpayers some money today, but it also nimbly dodged the question of whether public employees’ pension benefits can ever be scaled back.

    California may not think they can be scaled back but they can be. Math is a harsh mistress and so are bond markets. At some point California will no longer be able to borrow from anyone and no longer be able to tax any more and those pensions will be scaled back whether they like it or not.

    1. The California Supreme Court may have saved taxpayers some money today, but it also nimbly dodged the question of whether public employees’ pension benefits can ever be scaled back.
      This issue was not “dodged”, not at all. The CA Supreme Court did NOT address the CA Rule because that issue was NOT before the Court. BUT if you read the opinion, the CA Supreme Court repeatedly referenced the law review article of Amy Monahan of the University of Minnesota Law School. Her law review article, the most comprehensive and detailed analysis of the CA Rule, states it is clearly unconstitutional. Everyone should educate themselves on the law and constitutional protections. CA public pensions do NOT have any constitutional, guaranteed, protections to stay at the rate they are today, or when the employee was hired on, or going forward on a prospective basis. What has been accumulated for past work is 100% protected, but there is no doubt those formulas can be altered for future, prospective work, just as other benefits are, like healthcare, pay rate, scheduling etc., There is a reason the CA Supreme Court cited Monahan in their ruling, her work is 100% on the money, and quite frankly it is bullet proof.

      1. Professor Monhahan has the link to this case on the upper left hand side of her University web-page, and in case you cannot find it I will post that link also.
        https://www.law.umn.edu/ profiles/amy-b-monahan

        “Prof. Monahan Cited by California Supreme Court in Pension Ruling”
        https://www.courts.ca.gov/ opinions/documents/S239958.PDF

        Close the spaces in the two links, they would not post any word over 50 characters.

  2. That means the Supreme Court wasn’t obliged to decide whether the “California Rule” is a constitutionally protected right of public employees. And so they punted that part entirely. The old precedents are still in place, and the state and its municipalities are stuck: They’re unable to reduce what their financial commitments, even though the state’s pension fund may be underwater and carrying more than $360 billion in unfunded liabilities.

    That is a just a load of shit. The constitution says you can’t be deprived of property without due process of law not never at all. And an election and the legilsature deciding they are not paying you is due process. Governments cannot forever bind themselves to contracts. The sovereign can always terminate a contract for its convienence.

    1. I think they mean the California constitution which has way too many amendments for me to look at.

      1. Then just change the Constitution.

        1. They never stopped changing it, but they don’t want to change it that way it would seem.

    2. At this point it would be cheaper to pay damages for breaching the pension contracts and end the contracts.

      All new pensions, include a clause for lowering or raising at some percentage (.01%?) every year.

    3. It’s a load of shit in another way. When one gets hired by government in California there is no guarantee to that job for life. Yet, that same government is deemed to have a contractual obligation to maintain pension benefits forever. So the government can renegotiate your deal such that you’re no longer employed, but can’t renegotiate future pension benefits. That makes no sense.

      1. It makes sense that pension benefits are part of your compensation and they can’t retroactively change your compensation.

        It does make sense that they can terminate benefits you have not yet earned.

        The solution is bankruptcy.

  3. How the fuck is this not a rolling back of benefits? They must have done some impressive mental gymnastics to save the big C rule.

    1. ‘It could be considered a tax’…

  4. Correct me here, the rule on reducing benefits does not apply to municipalities that file for US Bankruptcy protection. Then the pension obligations come under US bankruptcy law which supersedes the state laws. I believe this was the effect in Stockton.

    I believe you could see a lot of this in places like California and Illinois. Municipalities will use the BK courts to reduce their obligations in the future.

    1. Not to mention that it is tough to tax someone who has moved to Texas or Florida

    2. Stockton ended up keeping its pension benefits intact, although the bankruptcy judge ruled that the city could have altered them.

    3. Or, when the local governments file bankruptcy, the pensions fall under the same rules as private companies. That is, the assets are transferred to the PBGC and the pensions are adjusted to what the assets could realistically support. But then again the Dems could do what was happened with the General Motors reorg union workers, ignore the law and guarantee the benefits.

      1. The PBGC does NOT insure Public Pensions, just private sector pensions. Public entities have never paid into the PBGC so they cannot take any benefit from it whatsoever.

    4. I suppose a court could distribute the assets of a bankrupt municipality to satisfy pension obligations. In place of cash retirees would then get ownership of city hall, fire trucks, and sewage treatment plants.

      1. No, a BK court CANNOT do that. Under Chapter 9 of the BK Code NO muni assets can be sold to pay debt.

    5. Local muni’s can file BK. BUT States do NOT need to file BK. States can simply REFUSE to pay public pensions. Repudiate them in whole or part. States cannot be sued per the 11th Amendment, so if any State wants to they can simply walk away from public pension debt.

  5. It was a trap that apparently worked perfectly.

  6. Can pensions be scaled back?

    The answer is yes.

    As the saying goes, anything that cannot go on forever simply won’t do so.

  7. “…carrying more than $360 billion in unfunded liabilities.”
    Huh. Too bad only the feds can just print money. Hey, I’ll trade you 4 Disney bucks for 1 dollar.

    1. Hey, how about a bushel of Venezuelan Bolivars? Maybe they can start calling them “Bernies”, since that imbecile is so in love with the poverty there.

      1. He’s in love with 99% of America being in poverty while he adds onto his large estate.

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