California’s public pension crisis is bad and getting worse
Gov. Jerry Brown got most of what he wanted when he carried a proposal to shore up the state’s underfunded public employee pension plans by trimming benefits for new workers.
Five years later, he’s in court making an expansive case that government agencies should be able to adjust pension benefits for current workers, too.
A new brief his office filed in a union-backed challenge to Brown’s 2012 pension reform law argues that faith in government hinges in part on responsible management of retirement plans for public workers.
“At stake was the public’s trust in the government’s prudent use of limited taxpayer funds,” the brief reads, referring to the period when he advocated for pension changes during the recession.
While the brief targets a specific provision of the pension overhaul he championed, its arguments suggest he favors broader pension changes that affect current employees.
“It was as good as anything the lawyers we use could have written,” said Dan Pellissier, president of an advocacy group that that wants to reduce California pension obligations for public employees and retirees.
The filing embraces a cluster of recent court decisions that hold public employees are entitled to reasonable pensions, but not necessarily ones that are calculated on the most favorable formulas for them.
And the filing paints unions as unreasonable in insisting that any reduction in pension benefits must be offset by additional compensation. That’s the so-called “California rule,” the legal precedent that has barred state and local governments from modifying pension benefits for existing workers they’ve offered over the past 60 years.
“Many legal experts have criticized the rigid inflexibility of the union’s position, pointing out that it is contrary to contract clause principles, inconsistent with general contract and economic theory, and effectively depresses the salaries and benefits of new generations of public employees,” Brown’s attorneys wrote in a footnote.
Brown’s office this month supplanted the attorney general in defending Brown’s pension reform law in a long-running lawsuit filed by the union that represents Cal Fire firefighters. The union wants to restore the ability of public employees to buy “air time,” a perquisite that lets workers purchase extra years of service that are credited to their pensions.
Before Brown’s pension reform law took effect, California public employees could buy up to five years of service credit through the air time offerings. Participating in the program cost workers tens of thousands of dollars up front, but gave them a higher pension when they reached retirement age.
Cal Fire Local 2881 President Mike Lopez said air time gave firefighters some assurance that they could count on a full pension if an illness or injury forced them to retire early.
“It’s an option for the sacrifice the firefighters are making for the citizens we protect,” he said.
Neither Brown’s office nor the Attorney’s General’s Office would say why the governor took over the case, but unions and lobbyists noticed the change.
“The governor has one year left and he like others sees the future and wants to try to make some meaningful reforms,” said Dane Hutchings, the chief lobbyist for the League of California Cities. Members of his organization have been asking lawmakers and pension leaders for more flexibility in negotiating to lower their pension costs.
Advocates who say California can’t afford the benefits it has promised to 1.8 million public workers and pensioners in the California Public Employees’ Retirement System in particular cheered the governor’s arguments.
Despite the pension changes Brown championed, the state’s two largest public pension systems are still severely underfunded. CalPERS, with $343 billion in assets, and the California State Teachers’ Retirement System, with $220 billion, each have a little more than two-thirds of the assets they’d need to pay the benefits they owe.
Both systems also are asking local governments and schools to pay more money to fund the pensions of their employees, a trend that some local government advocates say is “crowding out” their ability to fund services.
“There comes a point where you can’t become any leaner than you are,” Tulare City Manager Joe Carlini told the CalPERS Board of Administration last week.
The Cal Fire Local 2881 case is one several lawsuits that public employee unions filed shortly after Brown signed the Public Employees’ Pension Reform Act, which restricted benefits for public employees hired after Jan. 1, 2013, and required them to contribute more money toward their retirement plans. It did not change the base pension formulas that were available to employees who were hired before that date.
The law took aim at “spiking” by restricting the types of pay that public employees could use to calculate their pensions, and it prevented CalPERS from selling “air time” credits after Jan. 1, 2013. Both of those changes applied to workers who started their jobs before the law took effect, which the unions considered to be an infringement on the “California rule” because they cut incentives for current employees.
“You have to twist yourself up pretty good” to believe the air time and spiking changes will hold up in court despite the “California rule,” said Terry Brennand, pension director for SEIU California. “You’re taking away a benefit that is part of my program without offering me anything. I get removing it for future employees, but going backwards was a political move.”
The other lawsuits, one from Alameda County and from Marin County, challenge parts of the pension reform law that restrict “spiking,” or the practice of inflating public employees’ salaries late in their careers to swell the pensions they receive in retirement.
All three cases are headed to the California Supreme Court. They gained attention in lower courts when judges handed down opinions that seemed to challenge the “California rule.”
“While plaintiffs may believe they have been disadvantaged by these amendments, the law is quite clear that they are entitled only to a ‘reasonable’ pension, not one providing fixed or definite benefits immune from modification,” justices at the state’s 1st District Court of Appeal wrote in the Cal Fire case.
Brown’s filing at the state Supreme Court in the Cal Fire case cited those recent rulings in contending that governments have an interest in modifying pension plans. His brief called the airtime credits an “inherently unworkable and fiscally irresponsible scheme” and it warned that voters would not support tax increases if they don’t trust officials to manage the money well.
“That to me was the broadest argument he could make,” said Joe Nation, a former Democratic assemblyman who researches public employee pensions at the Stanford Institute for Economic Policy Research.
“What’s promising to me is he ties pension benefits to the general public good, and the general public good I would define as the government’s core mission” to provide public services, Nation said.
Union representatives and Cal Fire Local 2881’s attorneys said they were not surprised that Brown’s office intervened to defend a law that’s closely associated with his legacy. The Cal Fire union attorneys are also representing Marin County retirees in that other marquee case.
“The signature issue in both cases is the future of the California rule,” Gary Messing, one of the lead union attorneys. The Cal Fire “case is directly in the heart of it because you have a promise” from an employer to an employee.