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California Court: Constitution Is Not a Suicide Pact

California’s public sector pensions politics has historically worked something like this: First, union pension funds would purposefully conceal the cost of their liabilities with actuarial tricks and distortions. Then, even as the stock market boomed, the funds would run up a huge shortfall, leading the unions to come back to the state legislature asking for more. Saying no was not an option, because the state’s courts had ruled that reducing government employee pensions is always unconstitutional. So the pension outlays would increase, and the cycle would repeat itself.

Earlier this month, however, a California appeals court threw a wrench in this process by allowing the Marin County to bring its finances in order in part by modestly adjusting pension formulas for current employees. The San Diego Union-Tribune editorializes:

A unanimous state appeals court ruling that local and state governments can make “reasonable” changes in pension terms going forward is the best news on the California pension front … ever.

For decades, under what was known as “the California rule,” once a government employee was hired, her or his pension benefits could only be increased, not reduced. This was based on the assumption that these benefits amounted to a contract between employer and employee.

But in a ruling on unions’ push to continue late-career pension spiking in Marin County despite a 2012 state law saying such maneuvers were no longer legal, Associate Justice James Richman made a broader point: “While a public employee does have a ‘vested right’ to a pension, that right is only to a ‘reasonable’ pension — not an immutable entitlement to the most optimal formula of calculating the pension.”

The ruling stands in contrast to those in other states, like Illinois, where courts have been a major stumbling block to pension reform. This is a good first step, though the ruling could be overturned on appeal. Next, the legislature should direct its pension funds to cease their accounting mischief and put the state’s pensions back on a sustainable path, so that gaping pension deficits aren’t built in to the system from day one. With enough diligence, care, and good luck, the Golden State may be able to avert a genuine crisis.

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  • Beauceron

    I don’t know. I worry about things like this.
    What is “reasonable” can be bent to mean a lot of things. It may, at some point, be reasonable to strip away pensions altogether.These were promises made to workers who sometimes worked for decades relying on those promises.
    The truth is this: Democrats around the country used public sector unions to get elected. The deal was pretty straightforward– you elect us and we increase your pay and pensions. The workers kept their end of the bargain and cast their votes for Democrats who got put into office.
    It is the Dems who should not have been permitted to make those promises in exchange for votes with public monies to begin with. This was, at its core, a vote buying scheme.

    • Thom Burnett

      Those politicians who made the promises about pensions are long gone. They got their offices and money then moved on to other positions. What’s left is newly elected politicians who didn’t make the promises and are expected to pay for them.

      So the moral and legal question is who gets shafted – the pensioners who were promised their pensions or the tax payers who may not have been born when the promises were made but are now asked to pay more and/or get fewer services?

      • Beauceron

        Hmmm…but they are 1) usually from the same party who made the promises 2) if Democrats still reap the benefit of that “payment”
        The unions support the Dems, the Dems give them fat pension benefits. That was the deal.

    • Matt B

      We’re a long way from reasonable when a lifeguard can retire early with a six-figure pension.

    • Greg Olsen

      Public pensions and unionization of the public workforce are two different things. Public employees should have never been unionized. The purpose of enshrining the right to organize labor was to address a power differential in the adversarial relationship between management and labor. In the case of public employee unions, unions organize against the public not management. Management works for the union through the diversion of union dues to funding campaigns and the blocks of votes the union promises to deliver. We would not have a pension crisis if it were not for unionization of public employees in the first place.

      • Beauceron

        That’s certainly an excellent point.
        But I think the major problem here is that you had a political party lean heavily on the support of unionized public employees, basically guaranteeing that if the union helped put them in office, they’d be handsomely rewarded for it– and they did and they were.
        That is a conflict of interest and a form of public corruption, I think. And now we all have to pay for it. Bottom line though is that the promises were made, for better or worse.

  • Fat_Man

    Don’t worry the California Supreme Court will fix this problem. They can’t let Illinois lead the way.

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