From its New Deal-era founding through the 1990s, California’s public pension system, Calpers, was well-managed and fiscally sound, helping to provide a secure retirement for the state’s high quality civil service corps. But for the past generation, the fund’s position has steadily deteriorated, thanks to dishonest accounting, politicized investment ventures, and union capture of the state legislature. Today, California’s public pensions face a shortfall in excess of a trillion dollars.
A state appeals court gave some hope to California taxpayers earlier this year when it upheld a 2012 pension reform law which authorized local governments to crack down on “pension spiking,” by which public employees manipulated the rules to receive higher-than-anticipated lifetime benefits upon retiring. That ruling has been appealed, and now the seven justices on the California State Supreme Court have the power to either pave the way for a rationalization of the decrepit system or else deal a major setback to the reform effort. The Los Angeles Times reports:
The court, meeting in closed session, unanimously accepted labor unions’ appeal of a decision that said government pensions were not “immutable” and could be trimmed. […]
For decades, California courts have ruled that state and local employees were entitled to the pension that was in place on the day they were hired. Pensions could be cut for current employees only if an equivalent benefit were added, making it difficult for governments to cut costs.
If upheld, the ruling could be a vehicle for reducing a shortfall of hundreds of billions of dollars in public pensions in California. Other states grappling with pension debt also could follow California’s lead.
Courts across the country have interpreted their state constitutions to be highly protective of public sector pensions, even as unions and legislatures mismanage them, so it’s anyone guess how the California justices will rule. But the outcome of the case will reverberate far and wide. The Golden State has already faced two pension-fueled bankruptcies, in Stockton and San Bernardino, with more sure to come if public employee retirement benefits continue to spiral out of control. And a Republican-controlled federal government is unlikely to look kindly on pleas for assistance from a fiscally irresponsible deep-blue state.