Gov. Brown finally spends political capital to fix pension system

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Also appeared in: Reason.com,

Gov. Jerry Brown has more political capital than, perhaps, any modern politician has had in this state. He’s an iconic figure and smarter than almost anyone else in the Capitol, so he can pretty much have his way with the Legislature. A lot of us have wondered, though, why — almost seven years into his latest governorship — he has been so unwilling to tap that treasure trove and spend it on something really important.

Until now. Brown recently has weighed in on a state Supreme Court case that — without exaggeration — will determine the fiscal future of California’s municipalities. It’s a seemingly obscure case about a union benefit known as “airtime,” but it’s really about the ability of state and local governments to roll back future pension benefits they can no longer afford.

Brown has had major accomplishments, but mostly of the type (tax raising, extending cap and trade) one should expect from a governor working with supermajorities in his own party. Political capital is about investing in something important that cuts against the grain. In this case, Brown is taking on the public-sector unions he has spent his career empowering.

There’s no question Brown and his team understand what’s at stake. In 1999, California passed a law that started a wave of retroactive pension increases that were predicated on the idea that stock-market increases would endlessly pay for all those six-figure pensions and spiking gimmicks. But what goes up most come down. Instead, the state’s pension funds are dangerously underfunded and localities are slashing services to pay for golden retiree deals.

Brown’s Public Employees’ Pension Reform Act went into effect in 2013. It was a welcome, albeit modest, reform. Its passage was largely about convincing voters to approve Proposition 30, which raised taxes and plugged a gaping budget hole. At the time, pension abuses were front page news and state leaders needed to reassure voters that they were indeed fiscally responsible and could be trusted with more revenue.

In this particular court case, a firefighters’ union challenged the law’s elimination of the airtime benefit. Airtime allows union works to buy additional fictional years of service and artificially boost their pension checks. Advocates for the deal promised that it wouldn’t cost anything, but the state underpriced the benefit and it became — no surprises here — an appalling giveaway.

A series of court decisions has created the “California Rule.” It means that once a public employee receives a pension benefit it can never be reduced unless that employee receives something of equal or greater value. It is the main hindrance to reigning in soaring pension costs that are eating up municipal budgets and causing city officials to become pension providers that offer a few services on the side.

Most pension reform ideas, whether pursued legislatively or via initiative, run into this impediment. Sure, PEPRA and many local governments have reduced pensions for new hires. But it will take decades before those people retire. Governments are left cutting services, laying off employees and raising taxes and even mulling bankruptcy because there’s little else they can do. The California Rule locks in unsustainable benefits for current workers and retirees.

The unions argue that eliminating airtime violates that rule. It’s a poor argument — and an even more foolish legal strategy. But significant reforms often are born of hubris, and union greed has opened the door to the kind of wide-ranging changes to the California Rule that are imperative if we’re going to keep local budgets afloat. If these unions had accepted a few minor benefit rollbacks, there would be no threat to their gravy train.

The simple argument made by the Brown legal team is eliminating airtime does not violate the rule. It was never meant as a taxpayer-funded benefit (it was supposed to pay for itself). When the Legislature created it in 2003, it never “intended to extend an irrevocable offer to purchase airtime and prevent future legislators from adjusting benefits for the fiscal health of the state’s pension system.”

That’s spot on, but the real news is that the Brown administration is challenging the California Rule at a much deeper level. Even if the airtime option “somehow became a vested contract right, the Legislature did not violate the contract clause by withdrawing the option from current employee,” according to the administration’s brief. It quoted a ruling noting that “not every change in a retirement law constitutes an impairment of the obligation of contracts.”

The administration brief is in keeping with lower-court rulings, which found that public employees have a vested right to a reasonable pension but not to a budget-busting pension that can never be tweaked or reduced. Brown has gone where the state’s union-allied attorney general (and past attorney general) apparently wouldn’t go. He finally is spending his capital to take on the unions, but it’s a crucial investment even if late in coming.


Image by Frederic Legrand – COMEO

 

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