The Civil Grand Jury Report No. 1503 examines the cost of pension and retiree health benefit obligations on the County and suggests that "...the County has not challenged the prevailing assumption that California law prohibits it from negotiating reductions in pension benefits for its employes who entered service before 2013. We believe that assumption is in error... The Board of Supervisors should without delay seek such a change or clarification in California law." (p. 1)
The Report attempts to address the question "Why have the County's retirement obligations grown so large?," and includes as one of its reasons "California Law Apparently Preventing the County from Negotiating Reductions in Future Pension Benefit Rates for Existing Employees. One sensible way to reduce retirement obligations arising from past increases in pension benefit rates would be for the County and its employees to negotiate through collective bargaining reductions in pension benefits to be earned in future time periods. However, in contrast to wage and other benefit negotiations, the County has not negotiated reductions in future pension benefits for current employees through collective bargaining because of obstacles arising from highly inflexible court decisions unique to California and a minority of other states." (p. 7)
The Report indicates that "...the California Supreme Court has issued rulings that severely restrict the ability of the County to make changes to benefits not yet earned under its pension plans." It cites Allen vs. City of Long Beach, decided by the Supreme Court in 1955, as an example of a case that removed tools that would have allowed the County to manage and adjust its pension obligations. "That case held that not only was a public employer prohibited from terminating a pension plan for current employees; it must also assure that any alterations in the pension plan "which results in disadvantage to employees should be accompanied by comparable new advantages." This meant that after the Allencase public employers in California were on a one-way legal elevator that only went up. In contrast to wage and other employee benefits, any pension benefit granted to a current employee could not be reduced in future periods even though such benefits had not yet been earned." (p. 10)
The report goes on to say that public agencies in California have adopted the view that the "vested pension contract right the Court found in the Allencase could not be challenged by collective bargaining." However, the Report questions that assumption suggesting that "collective bargaining [the Meyers-Milias-Brown Act was passed in 1968] did not exist for public employees at the time the Allencase was decided [in 1955]." p. 11
The Report also suggests that the California Supreme Court based its decision in the Allencase on the Contracts Clause of both the California and the U.S. Constitutions, but "nothing in that prohibition [that prohibits California from passing laws that impair contract obligations] prevents the party to whom the contract obligation is owed from agreeing voluntarily to amend or waive that obligation." The Report goes on to suggest that "Federal courts would have the final say on whether the U.S. Constitution extends the same protection to future, unearned pension rights that the California Supreme Court found in its Allendecision." (p. 11)
Mr. Michael Moore, a member of the 2014-15 Civil Grand Jury has requested time to present additional information to the Committee and will be in attendance at the meeting, as will a representative of the County Counsel office.
Pension Reform Efforts
The battle over California’s public employee pensions could soon move from the courtroom to the ballot box.A group of pension reform advocates, led by former San Jose Mayor Chuck Reed and former San Diego Councilman Carl DeMaio, recently filed a statewide initiative for the 2016 ballot that would give voters a direct say on pension benefits. Dubbed the “Voter Empowerment Act of 2016,” the initiative would amend the state constitution to require voter approval of any new defined benefit retirement plans and place a 50 percent cap on government subsidies of retirement benefits provided to government employees.
The proposed state constitutional amendment would apply to all public employee pensions throughout the state. It needs 580,000 signatures from California voters to qualify for the 2016 ballot.
The four major provisions of the proposed state constitutional amendment, which would take effect in 2019, include:
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Requiring voter approval of any defined benefit pensions for new government employees;
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Requiring voter approval of any increase in pensions for existing government employees;
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Prohibiting any taxpayer subsidy of government retirement benefits in excess of 50 percent of the cost – unless voters expressly approve a higher contribution;
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Prohibiting politicians and government agencies from delaying, impeding, or challenging any voter-approved state and local ballot measures regarding compensation and retirement benefits.
The authors of the initiative said they will “commission a legal review” of the ballot summary issued by Attorney General Kamala Harris.
An article about the initiative is included in Attachment D. The initiative itself in included in Attachment E.
The new initiative effort comes after courts have struck down recent attempts to address the pension problem. Last year, voters in Ventura County collected thousands of signatures for a measure that would have allowed the County to opt out of the current defined-benefit system and replace it with a 401(k)-type system, but a county judge ruled that residents could not vote to leave a pension system created by the state.
In 2012, San Jose voters overwhelmingly approved a measure that would have given city employees a choice between a less-generous pension or staying in the current system but contributing a larger portion of their salaries toward paying down the pension debt. A Santa Clara County Superior Court Judge overturned that measure for violating the “vested rights” of public employees.
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