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Before he leaves office, Gov. Jerry Brown wants the state Supreme Court to resolve a lawsuit that could empower his successor to reduce or alter pension benefits for California public employees.
Brown’s office this month asked California Chief Justice Tani Cantil-Sakauye to accelerate the state Supreme Court’s consideration of a lawsuit that challenges a marquee law he signed six years ago restricting pension benefits for public employees hired after 2013.
Technically, the lawsuit seeks to undo only a small part of Brown’s Public Employee Pension Reform Act. It aims to restore a benefit the law canceled that had allowed public employees to buy “air time” — extra years of service that were credited to their pensions.
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But both sides acknowledge the stakes are much higher. A win for Brown would put a dent in the so-called California Rule, the precedent that forbids public agencies from reducing pension benefits for current employees and retirees unless they provide additional compensation to offset the loss of income.
Brown is eager to break that precedent, which generally prevents cities and other public agencies from making even minor adjustments to pension plans even as their spending on retirement plans climbs.
“Vital city services are at risk, including the ability to fund police and fire protection,” the League of California Cities wrote in a brief supporting Brown. “Some cities have become insolvent and other cities are on the brink.”
In October, Brown’s office took the unusual step of replacing Attorney General Xavier Becerra in defending the law against the challenge from the union that represents Cal Fire firefighters, Cal Fire Local 2881.
“This move was animated in large part by Gov. Brown’s deep concern for the fiscal integrity and solvency of public pension systems throughout the state,” Rei Onishi, an attorney in Brown’s legal affairs office, wrote to the chief justice on July 6.
“As the end of Gov. Brown’s term draws closer, we respectfully urge the court to calendar this matter for argument as soon as practicable,” the letter continues.
Cantil-Sakauye’s office has not responded to a request for comment, and Brown’s office declined to elaborate on the letter.
It’s unclear how Brown’s successor will handle the lawsuit if it carries over to next year. California’s two largest systems, CalPERS and CalSTRS, each have about 70 percent of the assets they’d need to pay all of the benefits they owe, and leaders of both organizations worry that a recession could set them back further.
Democratic front-runner Lt. Gov. Gavin Newsom assured public employee unions in endorsement meetings earlier this year that he would honor the California Rule even if it courts overturn it, according to a summary released by California Professional Firefighters.
Newsom “strongly believes changes in pension systems should be done with input and buy-in from workers and those who represent them — not something that is done unilaterally,” his spokesman Nathan Click told Bloomberg in February.
Republican John Cox has called the state’s public pension debt “critical.”
“Mr. Cox is closely watching the California Supreme Court’s future action on the Cal Fire Local 2881 vs. CalPERS, therefore it’s premature to speculate on any clarifications the court may make. That said, John Cox’s starting point is that California must keep the existing promises we have made, and set our public employee retirement programs on a course for future safety and soundness,” his campaign manager, Tim Rosales, said in a written statement.
The lawsuit, Cal Fire Local 2881 v. CalPERS, is one of two significant cases challenging Brown’s pension law that the State Supreme Court is expected to hear. The court is also receiving briefs for a case filed by the Alameda County Deputy Sheriff’s Association that argues Brown’s law illegally rescinded benefits to current employees.
Appeals courts sided with Brown in the Cal Fire union lawsuit but favored union arguments in the Alameda County case.
Brown at a news conferences this year said he anticipates that courts will uphold his law, void the California Rule and enable future leaders to adjust pension benefits.
“When the next recession comes around, the governor will have the option of considering pension cutbacks for the first time in a long time,” he said at a January news conference.
Gary Messing, an attorney representing the Cal Fire union, said Brown’s spending plan this year will help labor organizations prevail at the Supreme Court. Brown put the state on course to accumulate $16 billion in reserves by next July but did not commit additional money to paying down pension debts.
“CalPERS is doing better. The governor has $16 billion in reserve but hasn’t spent a nickel of that shoring up the retirement system. There has to be a necessity to change a vested benefit. I don’t see a necessity argument going well for the governor.”
The League of California Cities in February released a report that argued pension costs were becoming “unsustainable” for some local governments. About 10 percent of city leaders who responded to a league survey reported that they expect pension costs will consume about 20 percent of their budgets by 2024.
Unions counter that each city should work to solve its budget challenges on its own without upending the California Rule.
Under an umbrella group called Californians for Retirement Security, unions filed a brief in the Cal Fire lawsuit that said 42 public agencies last year reached agreements with labor organizations that required employees to kick in more money for their pensions. The brief also noted that state government’s spending on pensions has held steady between 1.6 percent and 2.2 percent of the state general fund since 2008.
“We also want the issue resolved,” said Dave Low, chairman of Californians for Retirement Security. “The courts have consistently ruled that an employer cannot impair the vested benefits of employees, unless an equal, offsetting benefit is provided. We strongly believe the Supreme Court will abide by the law and their own precedent, and not be unduly influenced by the governor.”