In a much-anticipated ruling, the California Supreme Court on Monday upheld former Gov. Jerry Brown’s elimination of a costly pension perk for state and local government employees.
But the high court punted on the core question of whether the state’s unaffordable and excessively generous retirement compensation plans can be altered.
With the fight on the bigger issue temporarily postponed, Gov. Gavin Newsom needs to step up to represent taxpayers now that Jerry Brown’s gubernatorial term is over. Newsom should stop ducking the question of whether he will carry on Brown’s court battle.
It’s time for the new governor to put the public interest and fiscal preservation of the state and, especially, local government ahead of his loyalties to public employee labor unions.
There are five more pension cases currently pending before the high court, meaning the justices will probably eventually get to the core issue. The next case in line — stemming from a dispute involving public employees of Alameda, Contra Costa and Merced counties — could force the issue.
All six cases challenge Brown’s 2012 pension law changes, which trimmed back benefits for new employees and altered some rules for benefits of then-existing workers. At issue in most of the cases is whether the changes for then-existing employees violated contractual promises protected by the state and federal constitutions.
In a string of cases dating back more than six decades, the state Supreme Court has ruled that most pension benefits enjoy such constitutional protections. The decisions have been dubbed the “California Rule” because their breadth is greater than in most other states.
Under the California Rule, it’s widely assumed that the rate at which workers earn future pension benefits cannot be reduced, even if they’re too costly to taxpayers. Pension reformers, including Brown, have been urging the justices to use the current cases to reconsider the rigidity of the California Rule.
But, in its first decision, on Monday, the Supreme Court avoided addressing that bigger issue. Instead, in a case involving purchase of extra years of service credit, justices unanimously concluded that public employees never had a contractual right to the perk.
The calculation of the amount of public employees’ annual pension is generally based on their salary in the final one or three years of work, age at retirement and years on the job, which is known as service credit.
A 2003 state law allowed public workers in the California Public Employees’ Retirement Association to purchase up to five years of service credit, even though they didn’t actually provide additional work.
Employees were supposed to pay an amount that, after investment returns, would cover the future cost of the additional benefits when they retired. The problem was that CalPERS underestimated the future cost and taxpayers were stuck making up the resulting shortfall.
Brown recognized the absurdity of this benefit and stopped offering it as part of the 2012 changes. State firefighters sued, claiming the governor and Legislature were taking away a constitutionally protected contractual promise.
Not so, said the high court.
The reason: There was no contractual promise to continue offering the benefit. It was an optional benefit that the state offered and was free to rescind.
Since it was never a contractual promise, it wasn’t constitutionally protected. Hence, there was no need to address the California Rule question of whether pensions generally should be so stringently protected.
The high court got it right. But, legally, this was an easy call. It was the low-hanging fruit.
The next case, from Alameda, Contra Costa and Merced counties, challenges provisions of the 2012 law that limit the counting of pay at termination — for items such as unused vacation and sick leave — in pension calculations.
In each instance, there was an agreement between the county and the employees to count that pay. But the lower court judge ruled that the agreements weren’t legal and hence not binding contracts.
The other cases involve the counting of on-call pay as salary in pension calculations; judges who were elected before the 2012 law took effect and want the higher benefits even though they didn’t start work until after the new rules kicked in; and two cases involving workers who lost benefits under the new law because they were convicted of job-related felonies.
In each case, Brown made reasonable and much-needed changes to state pension law. If those changes can’t stand, there’s little hope of more meaningful, and desperately needed, reform. It’s time for Newsom to get on board.
