San Jose pension reform: new players, new ruling

In what looked like a referendum on a voter-approved pension reform, a supporter, Councilman Sam Liccardo, was narrowly elected mayor of San Jose. He defeated a union-backed reform opponent, Supervisor Dave Cortese, who conceded last week.

Local, state and national public employee unions reportedly spent more than $800,000 to defeat Liccardo with a campaign warning that pension cuts were causing the city to lose police officers, endangering public safety.

“Voters don’t scare easily,” a San Jose Mercury-News editorial said the morning after the election in Silicon Valley. But warnings about endangering public safety helped defeat well-publicized measures in two other cities this month.

Voters in bankrupt San Bernardino rejected a measure (55 to 45 percent) that would have ended automatic pay raises for police and firefighters, which are linked to the average pay in 10 other cities.

Voters in Phoenix rejected a measure (56.5 to 43.5 percent) giving new hires of the Arizona city a 401(k)-style individual investment plan rather than a pension, similar to a measure approved by San Diego voters two years ago that exempted police.

The widely watched San Jose reform, approved by 69 percent of voters in June 2012, could lead to a state Supreme Court review of “vested rights” and whether pensions current workers earn in the future can be cut, while benefits already earned are protected.

“Public unions assert that pensions are inviolable, but California’s high court has never decided whether future benefits are protected under the state constitution,” a Wall Street Journal editorial about Liccardo’s victory said last week.

Liccardo

Liccardo

A series of state court decisions, a key one in 1955, are generally believed to mean the pension offered public employees when hired becomes a “vested right,” protected by contract law, that can only be cut if offset by a new benefit of comparable value.

Pension reform advocates, such as the watchdog Little Hoover Commission, say state and local governments need to be allowed, like private-sector employers, to control unaffordable costs by cutting pensions current workers earn in the future.

Cortese advocated a settlement of union lawsuits to overturn the San Jose pension reform. Measure B gives current workers an option: Pay more (an estimated 16 percent of pay) to continue earning the same pension in the future, or earn a smaller pension.

Liccardo said in a 140-page campaign book, an analysis of many local issues with proposed solutions, that San Jose retirement costs quadrupled in the last decade, undermining basic services and shifting debt for current services to future generations.

“How we get past our budgetary burdens will depend on whether we have a mayor who will fully litigate — and implement — Measure B reforms, and ensure that we’re paying our long-term obligations,” Liccardo said in the book.

“Within my first year in office as mayor, I’ll push for full funding of our annual retiree heath care obligations, to finally halt the growth of unfunded liabilities in that account,” he said.

Retiree health care debt, often overlooked, is in some cases larger than pension debt. The state worker retiree health care unfunded liability last year, $64.6 billion, was larger than the state worker unfunded liability for CalPERS pensions, $49.9 billion.

A benchmark state Supreme Court ruling in 2011 said retiree health care can be an “implied contract” with vested rights. A broad state Supreme Court ruling on vested rights in the San Jose pension reform might also apply to retiree health care.

When Liccardo takes office Jan. 1, he will be working in a weak mayor system with a slim majority of council members supporting pension reform, much like the current mayor, Chuck Reed, the main architect of the reforms.

The police union is expected to have a new president replacing Jim Unland, who predicted before the election that 200 officers would leave San Jose if Liccardo became the new mayor.

On the Friday after the election Liccardo led a unanimous city council vote not to investigate an allegation that Unland urged a class of San Jose police recruits to quit to aid the campaign against Measure B, the San Jose Mercury-News reported.

“We have new opportunities going forward, and I’ll be talking with the heads of our police union and certainly with the rank and file about how we can find common ground,” Liccardo told KQED last week. “I think there’s plenty of common ground.”

A day after the election a state Public Employment Relations Board administrative law judge, Eric Cu, issued two proposed rulings that San Jose failed to bargain in good faith with unions before placing Measure B on the ballot.

But the judge said the labor board lacks the authority to overturn a local ballot measure, pointing to a precedent set earlier this year in a ruling on a Palo Alto ballot measure repealing binding arbitration in labor negotiations.

“In other words, the board has the authority to order a city to rescind its approval of a ballot resolution, but lacks the authority to rescind the results of the election that followed the resolution,” Judge Cu wrote.

If the proposed ruling takes effect, with or without an appeal to the board, a court ruling would be needed to overturn the ballot measure. One of two unions that filed an unfair labor practices complaint said the ruling is an “opportunity” to negotiate a solution.

“This ruling, if upheld, will continue the process to invalidate Measure B and force the City of San Jose to return to the bargaining table and negotiate legal pension cost savings with its workers,” IFPTB, Local 21, said on its website.

Mayor Reed expects the proposed ruling to add to the list of union complaints and possibly bring another lawsuit. In a ruling on a half dozen union lawsuits last December, a superior court judge upheld 12 of the 15 provisions in Measure B, but not the option.

A record of the trial has not yet been completed for transfer to an appeals court. Reed estimated, based on previous cases, that the appeals court might rule within a year, which could be followed by an appeal to the state Supreme Court.

A superior court ruling last March that county workers have no vested right to “spiking” prohibited by a new state pension reform is being appealed. An administrative law judge has ruled that the San Diego pension reform was not properly bargained.

“You could have multiple cases headed toward the Supreme Court in the same time period,” Reed said. In the past, he said, the high court has on occasion collected several cases before ruling on the basic issue, such as marijuana.

Reed and four other mayors dropped an initiative for a constitutional amendment giving state and local governments the authority to reduce pensions current workers earn in the future, while protecting pension amounts already earned.

The mayors said Attorney General Kamala Harris gave the initiative an “inaccurate and misleading” title and summary. Reed said a new version of the initiative will allow a choice at the bargaining table, which is impossible to negotiate now.

He said a report last week that he needs $25 million for the initiative campaign is “a ballpark estimate of what it’s going to take to do it statewide. I don’t think you could do it for $10 million.”

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com. Posted 17 Nov 14

10 Responses to “San Jose pension reform: new players, new ruling”

  1. Peter Says:

    Apparently the Wall Street Journal legal eagles failed to read the California Supreme Court case of Legislature v. Eu, which clearly established the right to future benefits ARE protected under the State Constitutions–and also held such benefits are protected under the Federal Constitution as well. In the Eu case, the voters enacted an initiative that ended the right for current serving legislators to continue to accrue benefits in the pension system after the initiative passed.

    I know Reed, the Wall Street Journal and others feverntly wish the Supreme Court will suddenly overturn decades of settled law…not going to happen.

    BTW—glad to hear Reed admit the real reason he didn’t push his intitiative for signatures—-not because of the ballot summary, but because he can’t find the millions he needs to buy signature gatherers and then fund a campaign.

  2. Peter Says:

    Oh–to be clear—-in the Eu case, the California Supreme Court upheld the right to future accrual of benefits, despite the initiative.

  3. Captain Says:

    Peter Says:

    “I know Reed, the Wall Street Journal and others feverntly wish the Supreme Court will suddenly overturn decades of settled law…not going to happen.”

    – Pete, whom, other than (you, CalPERS, CalSTRS, The ACT 37 Pension Plans, and the PUBLIC EMPLOYEE UNIONS), say the law is settled?

    Peter Says:

    “BTW—glad to hear Reed admit the real reason he didn’t push his intitiative for signatures—-not because of the ballot summary, but because he can’t find the millions he needs to buy signature gatherers and then fund a campaign.”

    – Peter, can you back-up your claim? When did Reed comment that “he can’t find the millions he needs to buy signature gatherers and then fund a campaign?” He dnever said that.

    The Kamala Harris summary, IMO, represents both the status-quo and synergy amongst the CA Democratic Party and the Public EMPLOYEE UNIONS in California. The Public Employee Unions helped get our AG elected and she’s just returning the favor.

    I don’t see any issue when it comes to raising the funding for future initiatives related to out of control pension plans, which are COSTING TAXPAYERS BILLIONS of DOLLARS.

  4. Stuart Mill Says:

    Sounds like if pensions are tripled, they can’t be reduced.. Makes perfect sense. Stockton shows that 2 billion in obligations, not pensions, can be reduced. Let’s increase the pensions.

  5. Pete Says:

    Hey Capt,

    To answer your first question;

    Not onlly has the California Supreme Court held future accruals are protected (see Betts v. Board of Administration; Miller v. State of California; Legislature v Eu, etc) but every California Appellate court case interpreting those Supreme Court cases has also held future accruals are protected (see for example; United Firefighters of Los Angeles City v. City of Los Angeles; Pasadena Police Officers Assn v. City of Pasadena; Abbott v. City of San Diego,;International Assn of Firefighters v. City of San Diego, etc)

    Ask yourself this, Capt. If the law is so unclear, why is Chuck Reed trying to change the California Constitution section which the California Supreme Court has repeatedly held protects future accruals???

    But, Chuck has another problem. Even if he were to change the California Constitution and the California Supreme Court upheld the changes, the California Supreme Court has ruled the Federal Constitution also protects future accruals. Here’s the money quote from Legislature v. Eu:

    “We agree with Lyon v. Flournoy, supra, 271 Cal.App.2d 774, that, in light of prior California decisions consistently extending federal contract clause protection to state public officers, it is simply “too late” to retreat from the clear implication of those holdings. We conclude that the pension restrictions of Proposition 140 are unconstitutional under the federal contract clause as applied to incumbent legislators because they infringe on the vested pension rights of those persons.”

    Tell me, Capt, can you cite even one California case that has ever held pension benefits payable to existing employees, even for future service, could be reduced without being accompanied by
    comparable new advantages? Thought not….

    To your second question, if you really believe that the title summary and not lack of money for a campaign was the reason Reed folded, then you likely also believe the California Supreme Court has failed to rule that future pension accruals are protected by both the State and Federal contract clauses of the respective constituions.

  6. Captain Says:

    “Ask yourself this, Capt. If the law is so unclear, why is Chuck Reed trying to change the California Constitution section which the California Supreme Court has repeatedly held protects future accruals???”

    – I think it has something to do with our state legislature’s inability to do anything that isn’t approved by our Public Employee Unions. Unfortunately, our government, at least in California, is that broken. If you are so confident in your position why are you wasting your time trying to convince me your right, Pete?

    I haven’t earned a single penny for my efforts which hopefully are educating a few people. How many tens of thousands of dollars have you earned, Pete, for trying to convince people that the pension issue is A) not real, B) not worth worrying about, and C) a figment of our imagination? How much have they paid you to convince the SJ taxpayers that the public employee unions skimming money from their own pension plan, and giving that money to retiree’s in the form of a “thirteenth pension check” makes sense – while the pension plan was increasing the cost to taxpayers? That is CRIMINAL no matter how you try to spin it!

    Pete, how can you defend the Public Safety Unions claim that they would save 500 Million Dollars over ten years based on “their plan”. You do know “Their Plan” was really a shift to CalPERS, which extended payment terms substantially, thereby lowering short term costs but costing TAXPAYERS BILLIONS of DOLLARS in the long tem, and the back-end. What a sham!

    And what about all the disability retirements happening in San Jose? Tax FREE retirement benefits looks to be spreading at epedemic proportions.

  7. Berryessa Chillin' Says:

    Despite what the California Supreme Court has said, the federal Constitution has no such provision protecting future accruals, as Judge Klein in the Stockton case and other precedents elsewhere helpfully point out. Once you go to Federal Bankruptcy Court, you can kiss the CA court precedents goodbye. All the more reason for the public employee unions to stop being obstructionists and work to a solution that allows cities to provide for basic services while still giving employees a decent pension. Unions still fighting the battle on pension spiking obviously don’t have the common good in mind.

  8. Pete Says:

    Berryessa

    Judg Klein had nothing to say about future accruals. He only ruled that benefits already earned could be cut. While as noted by the California Supreme Court, the Federal Constitution’s contract clause protects those contracts–but Judge Klien ruled that despite the clause, the purpose of bankruptcy is to break contracts.

    Bottom line is that your understanding of Judge Klien’s ruling as it applies to the ability to accrue future benefits is simply wrong.

    Oh, and btw, for those of you salivating about the possiblilty of a the State of California resorting to bankruptcy to cut pensions—states can’t declare bankruptcy…..

  9. Pete Says:

    Hey Capt,

    I’m not getting paid anything to correct your constant misinformation–I do it as a free public service. It’s not my intention to educate you–but instead to provide facts to counter your rants.

    I know you want to shift the topic to now discuss the particulars of San Jose—which is what you often do on this blog when called out on your misinformation.

    So, once again, please reply to the topic at hand. You made the following statement:

    “Pete, whom, other than (you, CalPERS, CalSTRS, The ACT 37 Pension Plans, and the PUBLIC EMPLOYEE UNIONS), say the law is settled?”

    Again, Capt, since you say the issue isn’t settled despite the many published Supreme Court and Appellate Court cases that says it is. Please cite a single published (or unpublished) case that supports your position.

  10. Captain Says:

    Hey Pete,

    How about you address my concerns, and the concerns of many, before you start your own rant:

    1) How do you justify the San Jose Public Employee Unions skimming money from their own pension plan, and giving that money to retiree’s in the form of a “thirteenth pension check” – while charging taxpayers more and more money to backfill the dollars the unions are skimming fom the bottom of the deck? That is CRIMINAL no matter how you try to spin it!

    Pete, how can you defend the Public Safety Unions claim that they would save 500 Million Dollars over ten years based on “their plan”? You do know “Their Plan” was really a shift to CalPERS, which extended payment terms substantially, thereby lowering short term costs but costing TAXPAYERS BILLIONS of DOLLARS in the long term – the back-end. What a sham!

    How will the San Jose pension plan ever become fully funded when the employees are stealing money from their own pension plan (and I dare you to try and tell me they aren’t stealing money from their own pension fund – and charging taxpayers more & more to cover the cost of those stolen dollars). Go for it, Pete!

    How do you justify the unions contention/lie that they would be saving taxpayers money? Can you explain to me how the unions switch to the CalPERS Pension Plan, and away from the San Jose Pension plan, would save the city of San Jose, or the taxpayers of San Jose – one single dollar? It wouldn’t, but I’d like to hear your explanation anyway.

    And what about all the disability retirements happening in San Jose? Tax FREE retirement benefits looks to be spreading at epedemic proportions.

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