Why Pacific Grove Matters to Pension Reformers

UnionWatch has just released the fourth and final installment of “The Fall of Pacific Grove – The Final Chapter,” written by John Moore, who is a retired attorney and resident of Pacific Grove. This four part series constitutes an extended epilogue to a eight part series on Pacific Grove which was published last year on UnionWatch. Links to all twelve installments appear at the conclusion of this post.

Moore’s earlier set of articles describe in detail how Pacific Grove slid inexorably towards insolvency by yielding, again and again, year after year, to pressure from local government unions to award unaffordable pension benefits to city employees. Pacific Grove’s challenges are a textbook case of how there is simply no interest group, anywhere, currently capable of standing up to the political power of government unions. This small city now faces the possibility of selling off every asset they’ve got, primarily real estate, to private developers to raise cash for the city’s perpetually escalating annual pension contributions. They face the possibility of rezoning to allow construction of huge tourist hotels that will destroy the quality of life for residents, in order to enable new tax revenue producing assets to help pay the city’s required pension contributions.

Anyone familiar with local politics knows that one of the only special interests with the financial strength to oppose government unions in small towns are land developers. This end-game, where public assets are sold to developers to generate cash for pension contributions ought to put to rest any remaining debate as to who runs our cities and counties. Of course developers aren’t going to oppose government unions. By extension, and in a disappointing twist of irony, why should any libertarian leaning private sector special interest oppose government unions? As these unions drive our public institutions into bankruptcy, private sector investors buy the assets of our hollowed out public institutions at fire sale prices.

In this new four part series, author John Moore challenges the so called “California Rule” that supposedly makes pension modifications – even prospectively – legally impossible. But he also summarizes another legal approach to reform, one that takes into account the lack of due process and the ignorance of specific commitments made in the original granting of financially unsustainable pension benefit enhancements. It is an approach that has many facets and can be utilized in many California cities and counties. Unfortunately, Moore also exposes why this approach to reform, while viable, was only tepidly attempted in Pacific Grove.

While anyone serious about pension reform should read Moore’s work in its entirety, one of his key points concerns the “California Rule.” He writes:

“Cases discussing state employee pension rights are not germane to the issue of whether a local agency’s employees have a vested pension right, because the discussions in the state employee cases assume that the employees have vested rights, while in non-state cases the issue is whether the legislative body granted a vested right.”

Moore’s point, delved into in great detail in part one, is that unless a lifetime (full career) annual pension benefit accrual at a specific rate is explicitly granted by a legislative body, the presumption is that it is not. This means that changing pension benefits for existing employees from now on, prospectively, in many of California’s cities and counties, is not a violation of the California Rule.

That is hardly encouraging, of course, to pension reformers in those cities and counties where lifetime pension benefits have been explicitly granted at a specific rate of annual accrual for the entire career of any currently working employee. But where Moore’s first point may not apply, his second point might find wide application. Because as Moore alleges in Pacific Grove, an allegation echoed by Californian pension reformers in assorted cities and counties from the Oregon border all the way to Mexico, lifetime pension benefit enhancements were granted without due process.

Whether it was on the basis of negligently optimistic financial projections, the lack of independent financial analysis, missing steps in the oversight, review and approval phases, and other violations of due process both before and after implementation, pension benefits enhancements rolled through nearly every one of California’s cities and counties between 1999 and 2005. Many of them were rubber stamped by politicians who had no idea what they were doing. And many of them violated due process every step of the way.

If pension reform weren’t necessary, then litigation wouldn’t be worth considering. But what’s happening to Pacific Grove will happen elsewhere, if it hasn’t already. In hundreds of cases across California, cities and counties are just one sustained market correction away from selling off their parks, libraries and parking garages to feed the pension systems. And unlike tiny Pacific Grove, many of these larger cities and counties have a sufficient budget to take another shot in the courts to avert that fate. They may save not only their civic financial health. With appropriate reforms, they will also save the pensions.

It is impossible to summarize Moore’s entire body of work in a few hundred words. Pension reformers are urged to review this gripping story of how powerful special interests are destroying his home town, take notes, and think about how some of his ideas may be applied where they live.

*   *   *

Ed Ring is the executive director of the California Policy Center.

Read the entire series – The Final Chapter:

The Fall of Pacific Grove – A Primer on Vested Rights
 – The Final Chapter, Part 1, October 20, 2015

The Fall of Pacific Grove – The City’s Tepid Defense of the Vested Rights Lawsuit
– The Final Chapter, Part 2, October 27, 2015

The Fall of Pacific Grove – The Judge’s Ruling
– The Final Chapter, Part 3, November 2, 2015

The Fall of Pacific Grove – The Immediate Future
– The Final Chapter, Part 4, November 9, 2015

During 2014 author John Moore published the first chapter of The Fall of Pacific Grove in an eight part series published between January 7th and February 24th. For a more complete understanding of the history, read the entire earlier series:

The Fall of Pacific Grove – How it Began, and How City Officials Fought Reform
 – Part 1, January 7, 2014

The Fall of Pacific Grove – How City Thwarted Reform, and CalPERS Squandered Surpluses
 – Part 2, January 14, 2014

The Fall of Pacific Grove – CalPERS Begins Calling Deficits “Side Funds,” Raises Annual Contributions
 – Part 3, January 21, 2014

The Fall of Pacific Grove – Outsourcing of Safety Services Causes Increased Pension Deficits
 – Part 4, January 28, 2014

The Fall of Pacific Grove – Anti-Pension Reform Mayor Claims to Favor Reed Pension Reform
 – Part 5, February 3, 2014

The Fall of Pacific Grove – Privately Owned Real Property are the Only Assets to Pay for Pensions
 – Part 6, February 11, 2014

The Fall of Pacific Grove – The Cover-Up by the City After the Hidden Actuarial Report Surfaced in 2009
 – Part 7, February 18, 2014

The Fall of Pacific Grove – Conclusion: The “California Rule” Cannot Stand
 – Conclusion, February 24, 2014

About John M. Moore:  Moore is a resident of Pacific Grove, Ca. He is a licensed member of the California State Bar (#34734) and a member of the “Public Law” section of the State Bar. He is retired and no longer practices law, but has Lexis/Nexis for research. John graduated from San Jose State College with majors in Political Science and Economics (summa cum laude). He then received a JD from The Stanford School of Law and practiced business and trial law for 40 years before retiring. In 1987, he was the founding partner of a Sacramento law firm that he formed in 1987 to take advantage of the increased bankruptcies brought about by the Tax Act of 1986. Although he did not file and manage bankruptcy cases, he represented clients in numerous litigation matters before the bankruptcy court, including several cases before judge Klein, the current judge of the Stockton bankruptcy case. He is an admirer of Judge Klein, for his ability and accuracy on the law. As managing partner, he understood the goals of bankruptcy filings and its benefits and limitations.

5 replies
  1. Avatar
    John says:

    John. I think you are on the very right track to pension reform. All these people are not entitled to anything except what they paid into. I noticed and watch across the country and some of the world how so many people in city’s counties,state,and local,federal governments suck up what they think they deserve and don’t consider that the tax payers pay for it all. I saw how in 2008 through 2010 how even california cities went broke and still haven’t changed the pension systems. They all think they are entitled. I am fore making them pay their own just like the private sector and it needs to start now and not later.

  2. Avatar
    john m. moore says:

    Ed summarized my history of the Fall of Pacific Grove. I want to emphasize that the reaction to the Grand Jury reports in Marin and Sonoma county are very important. In PG we had an active group of pension reformers who spent hundreds of hours placing a pension reform initiative on the ballot. The reform paqssed by 74% of the voters. The unions sued. The city expended several hundred thousand dollars to fraudulently defend the union lawsuit.

    In Sonoma and Marin county, Grand Jury reports dramatically proved a lack of due process and clear criminal conduct by the lawyers, administrators, Bd of Retirement and Unions in granting 90% pensions to every employee and the BOS. Based on what occurred in PG, if the citizen reformers initiate litigation, the counties would expend millions of taxpayer money to defeat the reform. In the PG pension reform law suit, the state central unions underwrote the prosecution of the union law suit. So both union money and city money combined to trash a legitimate reform.

    My point: Reformers have made the point that pensions granted in violation of the law have ruined local government. Unfunded deficits will grow by two to three times in the next decade(deficits double every ten years: 7,5% X 30% deficit compounded)

    Reforms like the Reed-DeMaio proposals are harmfull. They suck up reform money that could be used to fix the system Agency by Agency. A state wide pension reform PAC is required. It must be funded by substantial sums to attract pension reform law firms to take on the present system. If in place, such an entity could have entered the fray in PG, Marin and Sonoma to put the jobs of the city council and BOS members at risk.It could help finance initiatives and defend them when approved by the voters. It could develop a streamlined Recall procedure. It could take lawyers who give “license to steal” legal opinions to the State Bar and monitor those cases.

    Mr. Reed and MR. DaMaio, you have the pension reform floor so to speak: “You could do this” instead of pursuing a weak reform which is too late.

    I do hope that any comments following this matter will not jump into a mindless name callng match among the usual suspects.

  3. Avatar
    SkippingDog says:

    As, no doubt, one of your “usual suspects,” it’s important to note that Reed and DeMaio couldn’t get financial support for their last initiative attempt. It’s unlikely they’ll get the kind of financial support you contemplate for their current efforts. There’s simply not much money out there that’s willing to support your efforts to undermine the existing public pension systems of California.

  4. Avatar
    JD Miller says:

    Ed Ring explains, briefly, what John Moore has been trying to help the residents and decision makers in Pacific Grove to understand.

    Those decision makers are City Management, City Council and the Unions. Note that the taxpayers and the City employees are not included as decision makers. Essentially, those decision makers have decided that they do not value the quality of life in Pacific Grove.

    They have colluded, knowingly or unknowingly, in the ultimate destruction of life as everyone knows it in Pacific Grove. They have created an environment where the beneficiaries of their decisions will be land developers who will change the nature of Pacific Grove.

    The Unions and the City employees will enjoy a temporary respite as Pacific Grove sells everything the City owns, often at fire sale prices, to fund the ravenous appetite of the unfunded public pensions.

    At the same time, the City will be compelled to rezone parts of Pacific Grove that the City doesn’t own to generate development fees and higher property taxes, again to provide additional tax revenues to feed the ravenous beast, the unfunded public pensions.

    Ed Ring closes his comments as follows:

    It is impossible to summarize Moore’s entire body of work in a few hundred words. Pension reformers are urged to review this gripping story of how powerful special interests are destroying his home town, take notes, and think about how some of his ideas may be applied where they live.

    Taxpayers who don’t want their cities to suffer Pacific Grove’s fate must act now. They must insist that their City Management, their City Council, and every one of their City employees come together to save not only their City but also to save the pensions that their employees are expecting.

  5. Avatar
    Tough Love says:

    Interesting choice of words in your above comment.

    “Takers” such as yourself use the word “undermine”, while pension reformers would likely choose “rightsize”.

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published.