Judge confirms the ‘California rule’: Pensions can only go up

Judge confirms the ‘California rule’: Pensions can only go up

evac.routeA state judge on Monday did a split-the-baby routine with San Jose’s voter-approved pension-reform law:

“SAN JOSE — In a landmark ruling that could help shape city budgets around the state, a judge invalidated key parts of San Jose’s voter-approved pension cuts but upheld other elements that could still save huge taxpayer costs.

“Santa Clara County Superior Court Judge Patricia Lucas’ tentative decision released Monday prohibits the city from forcing current employees to contribute significantly more toward their pensions, as called for in last year’s Measure B. But the ruling allows the city to cut employees’ salaries to offset its increasing pension costs.”

That’s from the San Jose Mercury-News. How is it possible that in California, once a public employee is hired, his pension can get bigger, but never smaller? It’s time for the depressing story of what’s known among pension lawyers as the “California rule.”

No cut without ‘comparable new advantage’

CASupremeCourtEmory University economist and law professor Sasha Volokh explained recently on one of the Reason websites:

“Most states are free to alter public employee pensions, as long as they do so on a purely prospective basis. For instance, a state can reduce cost-of-living adjustments (COLAs), say from 3% to 2%, as long as the amount accrued so far is still subject to the old COLA. But the rule is otherwise in California: California courts have held that ‘upon acceptance of public employment [one] acquire[s] a vested right to a pension based on the system then in effect.’

“In California, when a public employee begins work, he not only acquires a right to the pension accumulated so far—presumably zero on the first day, and increasing as he works longer—but also the right to continue to earn a pension on terms that are at least as generous as the ones then in effect, for as long as he works. And if pension rules become more generous in the future, then those more generous terms are the ones that are protected. Any changes to these rules must be reasonable, meaning that they ‘must bear some material relation to the theory of a pension system and its successful operation,’ and any disadvantages to the employees ‘should be accompanied by comparable new advantages.’ This is the ‘California rule.’

“The California rule was created in 1955, when the California Supreme Court considered a challenge to a 1951 city charter amendment in Allen v. City of Long Beach. The amendment raised the amount of employees’ retirement contributions from 2% to 10%. It changed the pension from a fluctuating amount (based on the salary attached to the retiree’s previous position at the moment pension payments are made) to a fixed amount (based on the retiree’s salary around the time of his retirement). And it required extra contributions from employees who had returned from military service.

“The Court held that the amendment unconstitutionally impaired the contract rights of the employees who were adversely affected, even though the changes were purely prospective.”

How ruling bollixes governance in Golden State

That is one destructive court ruling.

As an economist-law professor, Volokh has some particularly acute insights into why this is crazy public policy:

“Consider what isn’t protected. Salaries aren’t constitutionally protected, even if a salary reduction will have an indirect effect on the amount of one’s pension. Cost-of-living increases to salaries can be revoked for the future, but cost-of-living increases to pensions can’t. Tenure in office isn’t constitutionally protected either, though states can adopt civil service laws if they like. Only pension rules have a special status. But it seems strange to privilege pensions over everything else in this way.

“When pensions are given special protection that’s unavailable for other job characteristics, the mix of wages and pensions is distorted relative to what it would otherwise be (given collective bargaining, tax policy, employee time and risk preferences, and other factors). If market or fiscal pressures mean government compensation must become less generous, it’s salaries and other benefits that must take the hit, even if some employees would prefer to take some of the blow in terms of decreased pension benefits. Those with shorter life expectancies — men, the less-educated, the poor, minorities, and those in bad health — suffer the most from policies that protect pensions at the expense of current salaries. Some of the pain will also fall on taxpayers, and some of that pain may result in trimming state government services (e.g., police, fire, garbage collection, DMV, schools). The California rule thus makes reductions in government compensation either more painful for employees or more expensive to taxpayers than they would be if pension terms could adjust together with salaries and other benefits.”

How to fix this mess? Ballot measure

Volokh has some suggestions on how this insane status quo might be changed at the end of his essay, but they don’t reflect an understanding of California politics, for the most part. For one example, he suggests stacking the state Supreme Court with pro-reform appointees. That isn’t going to happen, period.

But he also makes the obvious suggestion — the one buttressed by pension reform ballot victories in plurality Democratic cities like San Diego and San Jose:

kh.ag“State constitutional amendment. The California rule could abolish by state constitutional amendment. (Such an amendment has already been proposed and may soon be on the ballot in California.) But this might itself be a law impairing the obligation of contracts, so it might be valid only for future employees.”

We can’t get to that point soon enough. Eventually, it seems likely to happen — even if Kamala Harris pulls her usual sabotage act with the ballot statement.

The comparison between the railroads in the early 20th century California and the unions in modern California are so eerily precise. They bullied and now bully everyone in their way. Alas, nowadays, the tool developed to deal with railroad control of Sacramento — direct democracy — is impeded by the union tools elected to jobs with responsibilities that include oversight of direct democracy.

In subverting direct democracy so frequently to protect unions from the public’s will, Kamala Harris is one of the true villains of modern California.

45 comments

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  1. Donkey
    Donkey 25 February, 2014, 07:48

    You ask a RAGWUS feeder how the tax dollars should be spent and the answer you are going to get is the same you would expect from Skdog, TCS, UU, Mehlman, or Queeg. It will need to go broke before it will get corrected. 🙂

    Reply this comment
  2. Steve Mehlman
    Steve Mehlman 25 February, 2014, 09:37

    Wow, delighted to be on Donkey’s hit list. That’s a badge of honor among people who think for themselves.

    Donkey doesn’t think tax dollars should be collected at all, let alone spent. Tough to argue with that sort of “logic.”

    Reply this comment
    • Tough Love
      Tough Love 26 February, 2014, 17:35

      Do you also delight in being associated with CalPERS (if only indirectly) …. CalPERS being a CANCER inflicted upon Society ?

      Reply this comment
      • SkippingDog
        SkippingDog 26 February, 2014, 20:58

        Why it’s Tough Love, almost on cue! CalPERS has been anything but a “cancer inflicted upon society” for more than 80 years now. It has done an effective job at managing a huge fund quite effectively in the long term, preventing the taxpayers of California from being required to pay for the pensions of their public servants with a contemporaneous revenue stream from taxes.

        You just dislike CalPERS because, as one of the bottom feeders of our financial system, you see their management as a lost opportunity for you and your colleagues to churn all of those nice, juicy retirement accounts for fees you can pocket yourself. That’s really the basis of most of these complaints from your side.

        Reply this comment
        • Tough Love
          Tough Love 3 March, 2014, 16:37

          Spoken from someone riding the crest of the gravy train.

          The higher up, the longer the fall. It’s only a matter of time.

          Reply this comment
          • SkippingDog
            SkippingDog 6 March, 2014, 12:14

            What about the fees you’re hoping to make, TL?

  3. Steve Mehlman
    Steve Mehlman 25 February, 2014, 09:37

    Wow, delighted to be on Donkey’s hit list. That’s a badge of honor among people who think for themselves.

    Donkey doesn’t think tax dollars should be collected at all, let alone spent. Tough to argue with that sort of “logic.”

    Reply this comment
    • Donkey
      Donkey 25 February, 2014, 16:23

      Steve, so excited at my acknowledgement of you, you had to post the same words twice!! 🙂

      Reply this comment
      • Steve Mehlman
        Steve Mehlman 26 February, 2014, 08:00

        Well considering who I was responding to, why should that surprise you?

        Remember the old expression, “You have to hit a donkey in the head with a two-by-four to get his attention.”

        Reply this comment
  4. SkippingDog
    SkippingDog 25 February, 2014, 10:03

    Thanks for the shout-out, Donkey! Kamala Harris is going to make a fine Governor in about 5 years. Maybe you can move to one of the libertarian utopias like Mississippi or Alabama?

    Reply this comment
    • Donkey
      Donkey 25 February, 2014, 16:21

      She may be Skdog, but “fine” will not be the definition the private sector taxpayers will use! 🙂

      Reply this comment
      • Steve Mehlman
        Steve Mehlman 26 February, 2014, 07:59

        I am and always have been a “private sector taxpayer” Donkey. I support my family and contribute to the local economy too. So please stop with the garbage that only you anti-goverment greedmeisters pay taxes.

        Reply this comment
        • Donkey
          Donkey 26 February, 2014, 11:01

          Sure you are steve!! You just happen to enjoy watching the state steal from the private taxpayer? 🙂

          Reply this comment
        • Ted Steele, CEO
          Ted Steele, CEO 26 February, 2014, 17:01

          Hmmmm– Steve, sounds like you have the same bone fides as many out here and yet often your posts are treated by the less bright out here with deep disrespect. Your posts well thought out and correct. The opposition you get from lightweights like Duncey truly say more about them than anything else.

          But it’s fun smacking then around!

          Reply this comment
  5. Suqs2bu
    Suqs2bu 25 February, 2014, 19:28

    But this might itself be a law impairing the obligation of contracts ”

    ANY Contract that requires an ever increasing amount of money from an ever increasing pool of investors to pay for day to day expenses, is by definition a PONZI SCHEME and Wholly Illegal Everywhere.

    A Contract that requires future taxpayers to pay for the wants and desires of the previous generation used to be called a SLAVE CONTRACT.

    I guess we don’t have to mention that every Public Employee Contract IS A MATHEMATICAL IMPOSSIBILITY to fulfill, using 3rd grade math.

    Reply this comment
  6. Ulysses Uhaul
    Ulysses Uhaul 25 February, 2014, 20:26

    Forget the small stuff. Just raise taxes…problem goes away.

    Reply this comment
  7. Donkey
    Donkey 26 February, 2014, 07:11

    In 1999 SB400 doubled the pensions for those that were already retired while increasing the amount that those in the future would receive, but the taxpayer gets no relief from this game of RAGWUS greed under any circumstances. We have a totalitarian government here in California!! 🙂

    Reply this comment
    • Skippingdog
      Skippingdog 26 February, 2014, 10:00

      SB400 did nothing to the pension of anyone who was already retired when it became law. The only people who had their pension formula increased were those who continued working in active service at the time.

      At least try to stick with the facts, Donk.

      Reply this comment
      • Donkey
        Donkey 26 February, 2014, 10:59

        The CalPERS-sponsored bill, SB 400 in 1999, gave the California Highway Patrol a 50 percent pension increase. Then in labor negotiations, local governments were urged to match the new benchmark as a way to remain competitive in the job market.

        The landmark bill also gave all state workers a large Retroactive pension increase. And retirees received a 1 to 6 percent increase in their pensions. All this could be done, said a CalPERS brochure given to legislators, without costing taxpayers “a dime.” Now take 15 years of COLA’s and add 6% Skdog and you end up with a 51% increase in pensions for those already retired at the onset.

        When I say pension costs are “unsustainable,“ I often cite the SB 400 increase along with below-forecast investment earnings. Frequently mentioned: Police and firefighters retiring at age 50 with 90 percent of final pay after serving 30 years.

        The California Public Employees Retirement System no longer claims that “superior” investment returns cover all SB 400 costs. But CalPERS does not view benefits as a key driver of pension costs, pointing instead to rising pay and market cycles.

        The inbred protectors of Calpers are nothing more than retired RAGWUS parasites. 🙂

        Reply this comment
        • SkippingDog
          SkippingDog 26 February, 2014, 20:54

          The maximum cola available under nearly all CalPERS plans is 2% per year, indexed to the CPI for California. There have been several recent years when no such COLA was approved, and those COLA’s can be applied in reverse to reduce pensions in deflationary periods.

          The other targeted COLA’s were directed to long-term retirees who had lost 50% or more of their purchasing power since retiring and, in some cases, were approaching destitution with incomes below the level of basic social security.

          Reply this comment
          • Donkey
            Donkey 1 March, 2014, 08:03

            No one in the private sector receives a COLA Skdog. The RAGWUS is the only scam going that receives a lifelong never ending increase in pensions.

            When you add in spiking, air time, DROP, phony disability, and the 28 other ways to steal from the taxpayers what we see is corruption and fraud. 🙂

        • S Moderation Douglas
          S Moderation Douglas 1 March, 2014, 08:33

          The ONLY CHP who got a fifty percent increase were those who retired AT age fifty. Those who retired at age fifty five got about ten percent, and those who retire with thirty five years service, or more, got ZERO percent increase.

          Reply this comment
          • Tough Love
            Tough Love 3 March, 2014, 16:33

            What this REALLY means is that the Unions and Politicians simply hoodwinked Taxpayers by the many years of saying that safety workers got [email protected] when in fact the 2% graded up sharply with longer service …. but that grade-up never seemed to be mentioned.

            Surprise surprise, less than full disclosure from those we elect to represent US.

      • Ted Steele, CEO
        Ted Steele, CEO 26 February, 2014, 11:00

        Poor Duncey.

        Reply this comment
      • Donkey
        Donkey 26 February, 2014, 11:22

        More: In 2002, the Sonoma County Board of Supervisors agreed to essentially increase pension benefits by 50% back to the date people were hired. However, County records show that the deal cut between the employees and the Supervisors stated that General employees would pay for the entire cost of the increase and Safety employees would pay for half the cost of the increase. This is the story of how the employees ended up paying for 6-10% of the cost and how the current Board of Supervisors seem willing to let them get away with it. 🙂

        Reply this comment
      • Donkey
        Donkey 26 February, 2014, 11:25

        Reform supporters point to Proposition 162, a 1992 voter-approved initiative that gave the labor union-friendly CalPERS board complete authority over investments and administration, shifting the pension fund’s allegiance from elected officials and taxpayers to public employees and retirees.

        Marty Morgenstern, Brown’s secretary of the Labor and Workforce Development Agency, said if taxpayers are going to be on the hook for paying pension checks, they should have a greater say over how funds are managed and invested. Under the CalPERS board structure, six of the 13 members are union members. Brown, a Democrat, wants to add two independent members with financial expertise to the board.

        Rosy economic times also gave state and local governments a false sense of security, since pension funds move up and down with the overall health of the economy. CalPERS, which was 71 percent funded in 1990, grew to be overfunded in the next decade, to as much as 116 percent in 2000. The fund was down to 63 percent in 2010, the most recent data available.

        And the seven other members are owned by the RAGWUS! 🙂

        Reply this comment
        • Ted Steele, CEO
          Ted Steele, CEO 26 February, 2014, 15:45

          Rawwis????

          Reply this comment
        • SkippingDog
          SkippingDog 26 February, 2014, 20:49

          Sorry Donkey. Proposition 162 was the response to Gov. Pete Wilson’s raiding of the CalPERS accounts for several billion dollars to cover his budget and let him claim to be a tax cutter in preparation for his presidential run.

          You still haven’t addressed the basic fact that SB400 didn’t raise retirements payments for anyone already retired, which was your earlier claim. You also ignore the fact that the average entry age for a law enforcement officer or firefighter in California is around 28 years of age, which would make it impossible for such individual to retire at 50 years of age with a pension of 90%.

          Be as unhappy as you wish, but know that SB400 was passed by a huge bipartisan majority of the legislature, as was the related legislation that applied the SB400 formula to counties and cities across the state. Each time those pension enhancements were approved by the city council or county supervisors approving the benefit, it was an independent decision by the elected local government leaders to do so.

          Reply this comment
          • Donkey
            Donkey 28 February, 2014, 19:48

            Skdog, it is clear from what I wrote that Calpers lied about the whole [email protected] fraud. All you are using is Sal Alinsky rules for lying to hide the truth. The entire RAGWUS is evil and corrupt! 🙂

  8. SeeSaw
    SeeSaw 26 February, 2014, 08:28

    I don’t think so, Donkey. SB400 put forth a new formula that respective entities could adopt, or not, depending on their respective current and future, financial conditions. It did not double anyone’s pension, already or prospectively retired.

    Reply this comment
  9. SeeSaw
    SeeSaw 26 February, 2014, 09:31

    When I came to CA in 1956, the price of a gallon of gasoline was about 30 cents and a loaf of bread cost 19 cents. Now the costs of those items and everything else have increased by ten, twenty-times, etc. Why should things be any different with the cost of pensions–its all relative isn’t it? If you turn on the news every morning, how could you not be grateful for the fact that your fate was to have been born in America, and you still have the freedom to complain your brains out!

    Reply this comment
  10. Ted Steele, CEO
    Ted Steele, CEO 26 February, 2014, 11:02

    What’s sort of funny is that all of this “breaking news” law was decided in the OC case— I guess spending tons on lawyers expecting a different result on the same facts is a good thing?

    I wish I was a Republican-bagger too.

    Reply this comment
  11. SeeSaw
    SeeSaw 26 February, 2014, 15:59

    Donkey, SB400 did not automatically give all state workers a retroactive pension increase. It gave public entities the ability to upgrade pension their, respective, pension formulas. Each public entity had to decide on its own whether or not it wanted to take advantage of the new pension law. To my knowledge, I don’t believe that miscellaneous state workers ever received the 3% formula.

    The voter initiative that gave control of CalPERS investments to the Board was necessary, because Pete Wilson was using the CalPERS fund as the State’s private piggy bank. That was stopped–good! With the record that Wall Street has established in the interim, CalPERS retirees certainly don’t need any of that ilk added to the Board.

    Reply this comment
    • Donkey
      Donkey 26 February, 2014, 16:30

      SeeSaw I love you, but you are clueless about the corruption that is taking place at Calpers. 🙂

      Reply this comment
  12. DadHominem
    DadHominem 27 February, 2014, 06:25

    What’s missing from the discussion is the “spending crisis”, of which the “pension crisis” is but a small slice of the pie.

    Why focus on the smaller piece when there are bigger economic “leaks” throughout all of state and local governments?

    Could it be that those who complain most loudly really DO want to take a controlling interest in the accumulated assets promised (by way of contract) to those who have labored on behalf of the citizens?

    Where there’s smoke, there’s fire.

    Reply this comment
    • Ted Steele, CEO
      Ted Steele, CEO 27 February, 2014, 12:44

      WELL said Dad!!!

      NObody wants to talk about ANY of their sacred cows.

      Reply this comment
    • Donkey
      Donkey 2 March, 2014, 10:31

      The greatest actual cost of government is pay, benefits, and pensions, to the tune of 90%. So if the focus should be on costs it should start there.

      Every bureaucracy in California is a haven for thieves and liars. Their RAGWUS unions have been stealing the state private sector taxpayers blind for the last thirty years. It will only stop when they run out of people to steal from, and they seem to believe that scam has no end.

      It is quite clear that every RAGWUS feeder is overpaid, underworked, over benefited, and way over pensioned, and that is putting it nicely!! 🙂

      Reply this comment
  13. SeeSaw
    SeeSaw 27 February, 2014, 10:28

    Well clue me in then Donkey. What is the corruption taking place at the world’s largest public pension plan–the plan that lost one-fourth of its portfolio in the 2008 global, economic collapse–a collapse that was caused by the very group of people that you want to pluck, from, to increase the CalPERS Board membership. I’m sure you can outline just want CalPERS did to bring on that calamity that affected the entire world.

    Reply this comment

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