Why Pacific Grove Matters to Pension Reformers

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.

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