California Supreme Court ruling ends the pension-reform game – for now
I don’t usually use sports metaphors, but after the California Supreme Court’s latest ruling in a much-anticipated pension case, I couldn’t resist. Some pension-reform advocates will toss around Hail Mary scenarios, but sometimes it’s best to accept the obvious. We fought hard, but the game is over. We’ll come back another day, but must regroup given that this was just the latest in a long string of disappointing defeats.
Last month, the court ruled on a case involving the Alameda County Deputy Sheriff’s Association, which challenged Gov. Jerry Brown’s 2012 law that outlawed pension spiking – gimmicks that public employees use to juice their final pay to receive larger lifetime pensions. News reports depicted the decision as a mixed bag, given that the court upheld the exclusion of various types of bonus pay from final pension calculations.
That’s thin gruel. No one seriously expected the court to overturn a modest, bipartisan reform law that has been in place for seven years. The heart of the issue involves something known as the California Rule. Reviewing its details is as interesting as mulling over the NFL’s “tuck rule” regarding the meaning of a forward pass, but that state rule is the most significant obstacle for localities that want to put their budgets on solid footing.
The California Rule is not really a rule, but a series of long-standing court interpretations. Basically, it declares that governments cannot pare back pension formulas for current employees – even going forward – unless they provide something of equal value in return. The Brown administration had hoped the high court would use these legal challenges as an opportunity to revise the rule.
In a 2019 case involving “airtime,” which allows public employees to buy future retirement credits at a discount, the California Supreme Court took a nearly identical approach as it did last month. It upheld the law’s restriction on that gimmick. Because airtime was not protected by contract, the court explained, it had “no occasion in this decision to address, let alone to alter, the continued application of the California Rule.”
I described the decision as a “punt.” (Sorry, again, for the football analogy.) Last month, the court likewise ejected some pension-spiking giveaways, but found “no jurisprudential reason to undertake a fundamental reexamination of the rule.” I never understood those wishful thinkers who thought that this time things would be different.
I first got plugged into the pension-reform movement in 2009, after writing a book (“Plunder!”) about unions and pensions. A decade earlier, Gov. Gray Davis signed Senate Bill 400, which retroactively granted California Highway Patrol officers a formula that allowed them to retire with 90 percent of their final year’s pay at age 50. The law sparked a statewide pension-increasing frenzy, as police agencies across the state adopted that generous formula. Then, miscellaneous government workers lobbied for the old law-enforcement formula. It was bipartisan plunder, by the way.
The California Public Employees’ Retirement System (CalPERS) promised that the enormous increases wouldn’t cost taxpayers a dime because stock-market gains would cover them. Then the market crashed, the retirement funds became perilously underfunded and pension costs began consuming local budgets. That led to tax increases and service cutbacks.
The crisis continues to escalate. Many governments have reduced pension benefits for new hires, but they can’t solve the underlying problem because the California Rule won’t let them deal with the outsized benefits for existing workers. (Readers literally don’t believe me whenever I write about the obscene payouts that many public employees receive, so I suggest a visit to the Transparent California website for details.)
The union-owned Legislature refuses to tackle the matter. It’s not even on their agenda. Any local elected officials who try to tackle it soon become ex-elected officials thanks to the political power of unions at the municipal level.
When San Jose’s voters approved a pension-reform measure in 2012, the courts tossed it because of – drum roll, please – the California Rule. When San Diego voters approved a pension change that year that didn’t run afoul of the rule, a union-friendly state agency derailed it by claiming that city officials were required to meet and confer with unions before putting the matter before the people.
Now the high court won’t touch the rule. I’m at a loss for a winning strategy. Our best hope is to sit back, let soaring pension costs (which could become a death spiral if the stock market plunges again) consume local and state budgets, and then field a new team at some point in the future.