Looming Decision on “California Rule” Will Dramatically Affect Pension Reform Efforts

Looming Decision on “California Rule” Will Dramatically Affect Pension Reform Efforts

On its surface, the case heard last Wednesday by the California Supreme Court in CalFire Local 2881 vs. CalPERS doesn’t seem that important. At issue is the so-called “California Rule,” an obscure legal doctrine relating to public employee pensions. But for California’s beleaguered taxpayers, the case is one of extraordinary importance because its outcome will determine the extent to which the local governments will look to taxpayers to shore up failing pension plans even more than they already do.

Labor interests have argued that under the “California Rule,” no pension benefit provided to public employees by statute can ever be withdrawn without replacement with some “comparable” benefit, even if it’s deferred compensation for services not yet provided, and even if the Legislature determines that citizens who are not public employees are unfairly suffering as a result of prior legislatures’ mistakes.

More than a decade ago, California politicians, seeking to curry favor with public-sector labor, began enacting laws to significantly increase public employee compensation. Among these enhanced benefits were a series of laws which allowed public employees to spike their pensions. For example, a 2004 state law allowed employees with at least five years of service to purchase up to five years of additional credits — commonly labeled “airtime” — before they retire. Under this plan, a 20-year employee could receive a pension based on 25 years of contributions.

When the recession hit and many pension funds were looking at billions in unfunded liability, it was clear that the party was over. To his credit, Governor Jerry Brown presented a 12-point comprehensive pension reform plan which, had it been enacted, would have solved virtually all of California’s public pension problems. Although the California legislature rejected most of the proposals, they did address some of the more egregious abuses including the airtime benefit law which was repealed in 2013.

One has to give credit to the public-sector unions for their tenacity. Once they have secured some perceived advantage, you’d have better luck taking a steak out of the mouth of a lion than have them give it up without a fight, no matter how unjustified that advantage is.

But reasonable people living in the real world can recognize unsustainable levels of benefits when they see them. This includes local government leaders and Democrats, not just fiscal conservatives and reformers. And apparently, if Wednesday’s hearing is any indication, the courts are equally as perceptive. Several justices of the Supreme Court were openly skeptical of the union’s position that the benefit of an airtime option could never be changed, and they further appeared open to other legislatively approved reductions in future retirement benefits.

The Howard Jarvis Taxpayers Association filed an friend-of-the-court brief in the Supreme Court on behalf of itself as well as the Ventura County Taxpayers Association, advocating the interests of those who are ultimately responsible to pay the billions of dollars necessary to maintain the solvency of public pension funds – the taxpayers. Regrettably, due to mismanagement and corruption, the state’s largest pension funds have served neither public employees nor the public at large. Pension obligations at the state and local level are “crowding out” other public spending and, as a result, schools, highways and public-safety needs have been short-changed.

A ruling in support of the legislature’s ability to make modest reductions in future pension benefits would go a long way toward saving California from fiscal disaster. But more than that, it would be an important first step in correcting the imbalance between ordinary California citizens and well-funded a special interests.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.

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