By James Poulos.
Reigniting a perpetually smoldering debate with nationwide implications, the California State Supreme Court agreed to consider whether rules cracking down on pension boosting strategies could be applied to unionized government workers.
“A state appeals court in San Francisco ruled in a Marin County case in August that the new laws could be applied to current employees — a potentially major setback for the workers and their unions, and a victory for local governments facing mounting deficits in their pension plans,” the San Francisco Chronicle reported. “But the state’s high court voted unanimously Tuesday to put that ruling on hold while it reviews the issue for a future statewide resolution.”
“The new laws were intended to curb pension ‘spiking,’ the practice of boosting retirement benefits by increasing an employee’s pay during the final years of employment,” the paper added. “It is often done by cashing out unused vacation time, sick leave, compensation for use of one’s car and other nonmonetary benefits.” Some 2 million California public employees have retirement plans underfunded by many billions of dollars, according to the Chronicle.
As has become almost customary, labor activists and policymakers around the country have positioned themselves to act swiftly on whatever the court should decide, possibly using a ruling to press for a decisive outcome in the pension wars that have see-sawed over the course of the decade. “The ruling would apply only to California, but if the state Supreme Court decides to uphold a lower court ruling that pension benefits can be reduced in some circumstances, it would be an important signal to the many other states grappling with unsustainable pension burdens and similar rules forbidding benefit cuts,” Eric Boehm noted at Reason. “It would also signal that courts are willing to reconsider the balance between public workers and the states (and the taxpayers in those states) writing their checks.”
“According to data from Transparent California, a project of the Nevada Policy Research Group, more than 20,000 retired public workers in California pulled down more than $100,000 in retirement benefits during 2015. Meanwhile, the CalPERS pension fund is more than $139 billion in the red, an amount that would require every man, woman, and child in California to pay $11,000 if it were divided evenly.”
With over $300 billion in assets, as Andrew Andrzejewski wrote at Forbes, CalPERS has become a symbolic anchor to pension defenders and an albatross from the viewpoint of critics, “helping 1,251 local governments confer ‘highly compensated’ pensions to tens of thousands of public employees. Updated numbers displayed at OpenTheBooks.com show there is a $2.8 billion annual cost to pay out 21,862 six-figure public-sector retirees via CalPERS.”
At the same time as pension watchers have braced for the state Supreme Court’s ruling, pension hawks have urged Californians to consider cautionary tales from outside the state. “While justices will consider the case based on its legal merits, state taxpayers should hope they keep in mind what has happened in Illinois since its Supreme Court held that public employee pensions were immutable in May 2015,” the U-T San Diego Editorial Board suggested. “A state that already was in terrible shape financially now looks on the brink of disaster, unable to pay $8 billion in bills. In September, former FDIC chair William M. Isaac called for the state to declare bankruptcy.”
Even with the sense of urgency surrounding the case, observers warned that the court could take its time. “Despite the California Supreme Court’s decision to accept the Marin County pension fund case, the case may move slowly. The Supreme Court in its posting said it was waiting for another case to be resolved,” according to Pensions & Investments. “Legal observers say the state Supreme Court wants to consolidate all the outstanding cases before holding a hearing and making a final decision.”