Can CA public-employee pensions be reformed?

Almost everyone acknowledges that California’s public pension system needs reform. Gov. Jerry Brown brought up reform in his his Jan. 2014 budget proposal for fiscal year 2014-15, which begins on July 1:

“Future liabilities — to schools, public employees’ pensions and retirement health benefits, infrastructure debt, deferred maintenance, and unemployment insurance — total $355 billion. These liabilities were built up over decades, and likewise, it will take decades to pay them off.”

Now, a new view on fixing the pensions comes from Alexander “Sasha” Volokh, a professor at the Emory University Law School in Atlanta.

Volokh has been writing a series of “white papers” for the Federalist Society on public pension and public employee compensation (see here and here).  The Federalist Society is a group of conservatives and libertarians that favors decentralized government and local control.

In his recent white paper, “Can We Fix the ‘California Rule’ for Public Employee Pensions?” he moves from descriptions to prescriptions for fixing the state’s perpetual deficit spending on pensions.

California rule

Volokh defines the “California Rule” as:

“[The] constitutional protection not only to the amount of public employees’ pensions that has been earned by past service, but also to employees’ right to keep earning a pension based on rules that are at least as generous for as long as they stay employed.” (emphasis in original)

A problem Volokh identifies is that public employees and retirees consider their pensions to be a form of private property guaranteed by the taxpayers not only for today, but tomorrow. That is, if the pension payouts are raised, they never can be cut. And if taxes are needed to be raised to continue the payouts, then so be it. As he wrote:

“[I]n California (and some other states), the courts give constitutional protection not only to the amount of public employees’ pensions that has been earned by past service, but also to employees’ right to keep earning a pension based on rules that are at least as generous for as long as they stay employed. I argue that protecting pensions accrued based on past work is reasonable; protecting the current rules into the future is far less so.”

A proposal is one thing. But do such reforms stand a chance in a state where the unions hold so much clout?  

Fixes

First, Volokh rules out some fixes, such as local emergency reforms to resolve a fiscal crisis or looking to the U.S. Supreme Court for relief.

But here are the fixes Volokh considers possible:  

1.  A flexible definition of benefits.  Volokh believes that pensions can be modified based on “actuarial advice” as provided in the legal case of International Association of Firefighters vs. City of San Diego in 1983. This would get around the current problem of pensions being considered inflexible and inviolate.

2. Short-Term Contracts.  Instead of a life-long, lease-like pension, Volokh proposes short-term employment contracts. “If pension terms are enshrined in memoranda of understanding … that expire at a certain time, it seems hard to argue that the employees have acquired any vested right to compensation, benefits, pensions, or anything else beyond the term provided.” This would be difficult to get by unions unless their power is reduced.

3. State Constitutional Amendment.  Volokh brings up San Jose Mayor Chuck Reed’s Pension Reform Act of 2014, which could be on the November ballot.

Volokh acknowledges that, even if passed, the reform would only apply to employees hired after passage.  The prospects for passage of such an amendment may partially hang on State Attorney General Kamela Harris’ ballot argument, which was called biased not only by conservatives, but even by the left-leaning editorial page of the Los Angeles Times. The courts will decide the initiative’s final wording. But the San Jose Mercury News wrote that Harris’ tactics may be a way to stall the initiative  so it can’t gain enough signatures to appear on the ballot this year.

4. Changing State Case Law By Stacking the State Supreme Court. How this would ever happen in these times of Democratic dominance in the state is a good question. Democrats backed by unions likely will win future elections for the post of governor, who appoints court justices, and the members of the state Senate, which confirms the justices.

However, Supreme Court justices also have to be confirmed by state voters. And in 1986, voters removed from the court three justices, including Chief Justice Rose Bird, for refusing to allow executions under the state death penalty. So justices that rule against pension reform might be vulnerable.

5. Privatization. Volokh writes that “firing state employees is constitutional and providing pensions and retirement plans for the contractors’ employees will be left to the private employers.” The problem, again, is whether union power would allow this.

6. Defined Contribution Plans. Volokh proposes switching from a defined (assured) benefit plan to a defined contribution plan.  The California Rule on pensions does not protect contributions by government employers, only the benefits.

Crisis

Another trump card for Volokh, Reed and other reformers is that California’s pension crisis isn’t going away. The recent bankruptcies of the cities of Stockton, San Bernardino and Vallejo all were caused at least in part by an inability to meet hefty pension obligations.

Union power also may have peaked, as shown by the dissatisfaction even many progressives showed last year when union workers twice went on strike and shut down the Bay Area Rapid Transit system. As the U-T San Diego noted:

“Even in the strongly Democratic Bay Area, residents have very little sympathy for BART workers. In August, Sen. Mark DeSaulnier, D-Concord, said he was considering legislation that would deny transit workers the right to strike, which is the norm in most large U.S. metropolitan areas.

If pension costs rise even higher and threaten bankruptcy for more California cities, some of Volokh’s “fixes” could start popping up as potential solutions.