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.

29 comments

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  1. Ted Steele, CEO
    Ted Steele, CEO 10 February, 2014, 11:56

    The Volokh-meister has a few good points—like short term K’s and some privitisation— BUT

    Of course a state constitutional amend goes nothing since we have the 14th A to the USSC and the fed K clause and DC plans just put less payers in the pool as the chicken moves through the snake.

    Best bet? Col Barg….

    Your Teddy Cakes!

    Reply this comment
    • Rex the Wonder Dog!
      Rex the Wonder Dog! 10 February, 2014, 13:34

      ZZZZzzzzz…more Teddy nonsense, different day…Wake me when the grown ups post …..

      CalTURDS is will fold within 5-10 years.

      Reply this comment
  2. Ted Steele, CEO
    Ted Steele, CEO 10 February, 2014, 15:02

    Please note— 1:34 the first negative post from the Poodle! Sad

    Reply this comment
  3. Queeg
    Queeg 10 February, 2014, 15:14

    Let the Byzantime tomes commence!

    Ugh.

    Reply this comment
  4. Ted Steele, CEO
    Ted Steele, CEO 10 February, 2014, 17:40

    It’s pretty dull-normal but what else can we expect?

    Reply this comment
  5. Rex the Wonder Dog!
    Rex the Wonder Dog! 10 February, 2014, 19:02

    Still no grown ups posting……bye for now

    Reply this comment
  6. Ted Steele, CEO
    Ted Steele, CEO 10 February, 2014, 20:23

    Well you can post Poody, please.

    Reply this comment
  7. Ulysses Uhaul
    Ulysses Uhaul 10 February, 2014, 22:40

    Poo is reconditioning the short order fry grill….it got all mucked up during Randsburg Days banging out 1/3 pounders. The truck stop was slammed by the usual black vest marauders and assorted sized biker queens….but…..all enjoyed…this prized desert extravaganza.

    Reply this comment
  8. Ted Steele, CEO
    Ted Steele, CEO 11 February, 2014, 08:13

    “Randsburg Days”!!! LMAO

    Reply this comment
  9. SeeSaw
    SeeSaw 11 February, 2014, 11:01

    What do you call PEPRA of 2013, if it was not pension reform? PEPRA did everything that Governor Brown requested in his list, in the fall of 2011, except for enacting his proposed Hybrid Plan. The experts who vetted the Hybrid plan recommended against its adoption, for good reasons, and PEPRA was adopted. The author and his crony pundits should stop looking this gift horse in the mouth, because PEPRA has reformed the CA Public Pensions as far as the law allows. You need to be very careful when it comes to amending the Constitution. I personally hope that the, “Reed Initiative”, never sees the light of day–too bad that its wouldn’t be nice to tar and feather him–what he deserves.

    Reply this comment
  10. billyBS
    billyBS 11 February, 2014, 12:23

    An average Cal govt pension is $27k per year. It is very imposrtant to not reduce that. A surcharge tax can be assessed on amounts above $27k that on a graduated basis, phased in over time, 90 percent over $100000. The average pension holder is not effected. This preserves the pensions for the future retirees. This can be combined with higher contributions by current workers to their pension funds. The taxes can be eliminated when the pension is fully funded. This is better approach than Mayor Reed and its fair to all.

    Reply this comment
  11. SeeSaw
    SeeSaw 11 February, 2014, 12:42

    Paul McCauley already tried it and his initiatives never get through the circulation process–good. Pension pay is just regular income–deferred compensation that is now being paid out–just like you pay on your 401k distributions. To put a special tax on pension pay is mean-spirited indeed. People should stop worrying about it and go on with their lives. I am a long-time CA resident and I can attest: Our current taxes are fair!

    Reply this comment
  12. Ulysses Uhaul
    Ulysses Uhaul 11 February, 2014, 13:05

    These articles don’t bring out the flame throwers anymore…..tired of beating a subject with no hope of change….

    Reply this comment
  13. billyBS
    billyBS 11 February, 2014, 13:48

    Ok, let current contribution levels stay the same, let all tax rates stay the same(“Our current taxes are fair”), and let us see where the pension funds ends up. Sounds like a plan.

    Reply this comment
  14. Wayne Lusvardi
    Wayne Lusvardi 11 February, 2014, 14:28

    It is not the average annual pension that is relevant. It is the future benefits of those who have recently retired or are about to retire. The system has a huge unfunded mandate.

    Reply this comment
  15. SeeSaw
    SeeSaw 11 February, 2014, 15:29

    That’s why there are actuaries. It is up to them to determine what has to be done to keep the plans sustained. There is no excuse for having unfunded liabilities–pension contributions are a percentage of payroll and should be a line-item on the budget every year. Whatever needs to be done now, should be done. PEPRA caps pensionable income for any public employee hired after Jan. 1, 2013; abolished retroactive pension upgrades; requires all employees to pay the maximum amount allowed of their own pension contributions no later than 2018. The detractors need to move on. There are a lot of people out of work and they are hungry–why not focus on that for a change?

    Reply this comment
  16. billyBS
    billyBS 11 February, 2014, 16:23

    I am an actuary,

    Reply this comment
  17. SeeSaw
    SeeSaw 11 February, 2014, 18:09

    Can you say with a straight face, that the fact that people are living longer is a big surprise?

    Reply this comment
  18. Rex the Wonder Dog!
    Rex the Wonder Dog! 11 February, 2014, 18:35

    Still no grown ups commenting… 😉

    Reply this comment
  19. billyBS
    billyBS 12 February, 2014, 10:13

    “our current taxes are fair” Again, sounds good to me.
    I am saving for my retirement, planning for a long life on MY DIME. Practice thrift, personal responsibility, and integrity.

    Reply this comment
  20. Rex the Wonder Dog!
    Rex the Wonder Dog! 12 February, 2014, 14:21

    Looks like the grown ups are passing on this one…..

    Reply this comment
  21. Ted Steele, CEO
    Ted Steele, CEO 13 February, 2014, 07:18

    The Volokh-meister has a few good points—like short term K’s and some privitisation— BUT
    Of course a state constitutional amend goes nothing since we have the 14th A to the USSC and the fed K clause and DC plans just put less payers in the pool as the chicken moves through the snake.
    Best bet? Col Barg….
    Your Teddy Cakes!

    Reply this comment
  22. Ulysses Uhaul
    Ulysses Uhaul 13 February, 2014, 09:52

    Why beat your noggin out on this….it’s over….why are you worrying about 30 years from now? Enjoy life….this depressing stuff is not healthy. Look what has happened to Dys, Donkey, Collapso and our mascot Poodle….

    Reply this comment

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