Pension hawks celebrated in August when a California appeals court upheld a state law limiting the ability of public employees to spike their pensions late in their careers. But with the case possibly headed to the state’s Supreme Court, the battle isn’t over yet. The Marin Independent Journal reports:
Four Marin labor groups have appealed a state appeals court decision that some say could radically alter the ability to reduce the retirement benefits of public employees who are still on the job.
The plaintiffs — the Marin Association of Public Employees, known as MAPE; the Marin County Management Employees Association; Service Employees International Union 1021; and the Marin County Fire Department Firefighters’ Association — have requested that the state Supreme Court review a decision issued in August by the 1st District Court of Appeal in San Francisco. […]
The Marin County Employees’ Retirement Association has an unfunded pension liability of $402.8 million; the county of Marin’s share amounts to $243.6 million. The appellate court noted in its decision that in May 2011 the Congressional Budget Office estimated California’s unfunded liabilities at between $2 trillion and $3 trillion.
The so-called “California rule” has historically prohibited the state from reducing pension benefits over time. So when union-dominated public pension funds would purposefully conceal the costs of their liabilities and eventually run up a huge shortfall, the state would be unable to do anything except increase its own contributions even further. The California appeals court ruling from this summer modified this precedent by holding that, “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.” It’s no surprise that the unions are looking to get the ruling tossed.
Hopefully the California Supreme Court won’t give more cover for more can-kicking and phony accounting. Municipalities in the Golden State and across the country are facing deep fiscal holes that they will not emerge from without either adjustments to pension guarantees or draconian cuts to vital public services like education or public safety. As more and more cities start to feel the tremors of the coming avalanche of defaults and credit downgrades, judges need to give local governments more fiscal flexibility than they have had in the past. Without that flexibility, more municipalities are headed for bankruptcy. And once they file for Chapter 9, all bets are off, and pensioners could face an even worse haircut than anything being discussed today.