As Local Governments Deal With Pension Crisis, Key Case Heads to State Supreme Court


As Local Governments Deal With Pension Crisis, Key Case Heads to State Supreme Court

California Supreme Court case on San Diego pension reforms will impact cities and counties across state.

Will California permit local governments to fix their broken pension systems and achieve financial sustainability? That is a question the state Supreme Court chose to take when it recently agreed to hear a case against San Diego’s 2012 voter-approved pension reforms. While the case focuses on San Diego, the court’s decision will have statewide implications that could hamper local governments’ ability to tackle rising pension costs.

Like many California public agencies, San Diego dug a hole for itself in the early 2000s by retroactively increasing public employees’ pension benefits. The benefit enhancement gave non-uniformed government workers the chance to retire at age 55 on an annual payment equal to the number of years worked for the city multiplied by 2.5 percent of the worker’s final salary. Rather than properly fund the higher benefits, the city doubled down on its risky strategy of making pension contributions lower than were recommended, instead simply hoping investment returns would make up the difference.

By 2012, San Diego faced an unfunded pension liability of $2.3 billion and was in a fiscal crisis. Voters approved Proposition B by an overwhelming 66 to 34 percent margin in 2012.

The measure ended defined benefit pensions for all newly hired, non-police employees. Instead of guaranteed pensions, they’d get 401(k)-style retirement plans similar to those most private sector workers use. The reform did not impact existing government employees in deference to the “California Rule” — a state court doctrine that prohibits public agencies from reducing benefits packages promised to existing employees, while permitting enhancements to these benefits regardless of whether they are properly funded.

Proposition B reduced financial risks for taxpayers and is one factor helping to right San Diego’s fiscal ship. The city scored better than Los Angeles, San Jose and San Francisco in a recent ranking of city fiscal strength published by the California Policy Center. But San Diego’s return to fiscal health could be halted if the state Supreme Court overturns Proposition B.

The measure first came into legal jeopardy three years after its passage. In December 2015, the California Public Employee Relations Board ruled that Proposition B violated California’s Meyers-Milias-Brown Act, which requires city officials to “meet and confer in good faith” with union representatives before deciding whether to change terms and conditions of employment. PERB concluded that then-San Diego Mayor Jerry Sanders violated the act by advocating Proposition B. PERB, a quasi-judicial state agency whose members are appointed by the governor, rejected Sanders’ contention that he championed the pension reform as a private citizen and not as an elected official.

If allowed to stand, the PERB ruling would have a chilling effect on pension reform in California. It sets a precedent under which state appointees can override local elected officials and voters, enforcing policies dictated by public employee unions. That should be no surprise in this case because PERB’s decision was authored by board member Eric Banks, who previously served as president of a local Service Employees International Union chapter representing public employees in San Diego County. Banks’ photo was featured in a union-funded mailer opposing Proposition B, leading to a legitimate concern that he could not be a neutral arbiter. A second of the three PERB members, Priscilla Winslow, previously served as assistant chief counsel for the California Teachers Association.

In April, an Appellate Court overturned Banks’ decision, noting that Proposition B was, in fact, a citizen-sponsored initiative and Sanders had emphasized that he supported the measure in his capacity as a private citizen during the campaign.

If the state Supreme Court rules against San Diego, a worst case scenario could force the city to make retroactive pension contributions for all employees hired since Proposition B took effect in 2013. It also threatens to further deprive local governments of the tools they need to control public pension costs. State courts should let local governments control their own pensions systems.

This column first appeared in the Orange County Register.