Will Brown get chance to defend pension reform?

The state Supreme Court told lawyers last month that oral arguments may be held as soon as November in a case challenging part of Gov. Brown’s pension reform, which some think could result in a major ruling allowing pension cuts.

But the pension case was not placed on the high court’s next monthly schedule for oral hearings, Nov. 5 through Nov. 8, before the advance-notice period of at least 20 days expired last week.

Now if the court remains on its current schedule, the last chance for Brown and his attorneys to defend his pension reform, before a new governor takes office on Jan. 7, are the last oral hearings of the year, Dec. 3 through Dec. 7.

“As the end of Governor Brown’s term in office draws closer, we respectfully urge the Court to calendar this matter for argument as soon as possible,” the governor’s legal affairs office said in a letter to the Supreme Court last July 6.

It’s not clear whether the Supreme Court is waiting for Brown to end a record 14-month delay in filling a vacancy on the seven-member court. The court is said to have handled 104 cases while shorthanded.

The Supreme Court has agreed to hear five cases challenging minor parts of Brown’s pension reform. Most of them argue that the reform legislation violates the “California rule” that protects the pensions of current employees and limits big cost-cutting changes to new hires.

The California rule is a series of state court decisions, a key one in 1955, believed to mean the pension promised at hire becomes a “vested right,” protected by contract law, that can’t be cut unless offset by a comparable new benefit, which could erase any cost saving.

The rule was cited as courts overturned three measures approved by voters: A Pacific Grove limit on contributions to CalPERS in 2010; a San Francisco end to supplemental pension payments in 2011, and a San Jose option for current workers in 2012.

Because of the rule, the major parts of the Brown pension reform — lower pension formulas, extended retirement ages, and caps on pension amounts — presumably were limited to new hires, who are not yet vested.

As a result, cost savings from the reform also are limited. The California Public Employees Retirement System expects the reform to save $29 billion to $38 billion over the next 30 years, not a big reduction in an unfunded liability of $138.6 billion as of June 30, 2016.

Brown’s legal office replaced the state attorney general in the defense of a firefighter challenge to a part of the reform that prevents employees from boosting their pensions by purchasing up to five years of “airtime,” credit for extra years in which they did no work.

“This move was animated in large part by Governor Brown’s deep concern for the fiscal integrity and solvency of public pension systems throughout the state,” said the governor’s office letter in July. “It was the same concern that motivated him to help develop the Public Employees’ Pension Reform Act of 2013, and sign it into law.”

The airtime case, Cal Fire v. CalPERS, was deemed fully briefed last Jan. 22. Scheduling for oral arguments “typically occurs several months to a year after all briefs on the merits have been filed,” said Cathal Conneely, a Supreme Court spokesman.

Brown said in January he has a “hunch” the courts will modify the “California rule,” so “when the next recession comes around the governors will have the option of considering pension cutbacks for the first time.”

Former Supreme Court Justice Kathryn Werdegar gave notice in March last year that she would retire in August.The vacancy is being filled by different justices temporarily brought up from the appeals court to hear each case.

“It’s not something I want to do too quickly,” Brown told reporters in January. “It’s very important now. I have appointed three. The fourth could be very decisive. So I want to understand how that decisivness should work.”

Democratic appointees will be a majority for the first time since 1986, when voters ousted three Brown appointees (Chief Justice Rose Bird, Cruz Reynoso, and Joseph Grodin) after a campaign focused on death penalty reversals, the Associated Press reported.

In speculation about the delay, Brown may appoint an aide he wants to retain as long as possible, postpone a retention election for the appointee for four years by waiting past the September deadline for the ballot next month, or even appoint his wife Anne Gust Brown.

There also is speculation that the Supreme Court could avoid clarifying the California rule by finding that the minor pension cuts in the cases, which don’t touch the core pension formula, are not vested rights.

For example, the Supreme Court summary says the Cal Fire case presents two issues: 1) Was the option to purchase airtime a vested pension benefit (2) and if so, did the legislation ending airtime purchases violate the contracts clause of the state and federal constitutions?

The first part of the argument in the governor’s office brief last November is that the option to purchase airtime was not a vested contract right. And even assuming that it was vested, said the second part, withdrawing the option was permissible under the contract clauses.

A case deemed fully briefed on Aug. 23 challenges a reform that prevents “spiking” in county retirement systems by boosting the final pay on which pensions are based, often by cashing out unused vacation and leave time and adding call-back and other one-time pay.

The fully briefed county case (Alameda County Deputy Sheriff’s Assn. v. Alameda County Employees’ Retirement Assn.), consolidated with similar Contra Costa and Merced county cases, was designated by the Supreme Court as the lead case for other pension reform challenges.

The court put the first appeals court ruling to modify the California rule, a Marin County case in August 2016, on hold and deferred briefing until an appellate court decision in the Alameda case, which was issued last January.

“While a public employee does have a ‘vested right’ to a pension, that right is only to a ‘reasonable’ pension — not an immutable entitlement to the most optimal formula of calculating the pension,” Justice James Richman wrote in the groundbreaking Marin ruling.

“And the Legislature may, prior to the employee’s retirement, alter the formula, thereby reducing the anticipated pension. So long as the Legislature’s modifications do not deprive the employee of a ‘reasonable’ pension, there is no constitutional violation.”

The Marin ruling was cited in the appeals court ruling in the Cal Fire case in December 2016. Why did the Supreme Court make the Alameda case, rather than Marin case, the lead in September 2016, long before the appeals court Alameda ruling last January?

An attorney for firefighters in the Cal Fire and Marin cases, Gregg Adam, said he thinks the likely explanation is that the Marin trial court ruled on a “demurrer” requiring no evidence, unlike the Alameda trial court evidentiary hearing that produced a well-developed file.

“Courts usually prefer to work off a voluminous, well-run trial court record rather than the Marin case, which basically is nothing,” Adam said.

Last week the Supreme Court recused themselve from hearing a state appeal of a ruling that, the Sacramento Bee reported in June, could give 3,000 judges whose salary was frozen between 2008 and 2013 back pay totaling $40 million plus annual 10 percent interest.

Apparently because some or all of the current Supreme Court justices might receive the back pay, the court appointed six superior court justices who took office after July 1, 2017, to hear the state appeal in Mallano v. Chung.

A decision in the California Rule cases could result in a reduction of the pensions of the current justices, through legislation or an initiative. Why did the Supreme Court recuse themselves in the Mallano case, but not in the Cal Fire and Alameda cases?

“The court (and justices and judges) does not disclose the reasons for recusal (and are not required to do so) — this protects against ‘judge/forum shopping’,” said Conneely, the Supreme Court spokesman.

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 22 Oct 18

One Response to “Will Brown get chance to defend pension reform?”

  1. moore Says:

    The 1955 case referenced above recognized a “vested” contract right that depended on the language of a Long Beach City Charter.

    The Pacific Grove case was intentionally lost by the city atty and outside counsel. The Pacific Grove charter explicitly provided that the city could not grant “Vested” pension right except by a vote of the voters. There was no vote, but the attorney’s willfully withheld that fact from the judge. The sponsors of the successful initiative were not allowed to testify about the Charter. There was no public trial.

    The San Jose Charter specifically provided that pensions could be reduced for work not yet performed, but the judge ignored that provision. The mix of the city council changed in favor of unions and the new council not only failed to appeal, but granted a new raise.

    But even if the court states conditions that would allow a reduction in pension benefits, it won’t matter. City councils and BOS’s could reduce pensions immediately via freezing salaries: if they are unwilling to do so, why would anyone expect them to reduce pensions via a financial argument?

    You can’t make this stuff up. John M. Moore(JD Stanford School of Law, licensed Ca. lawyer)

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