SAN FRANCISCO – California-based non-partisan think tank Pacific Research Institute today applauded the California Supreme Court’s decision in a landmark case on public employee pension reform, Cal Fire Local 2881 v. CalPERS and the State of California.
PRI submitted an amicus brief in the case, arguing that a favorable ruling was necessary to preserve the Legislature’s future ability to exercise its constitutional authority to address the state’s massive unfunded pension liabilities and control the State’s budget.
While the court upheld the Legislature’s repeal of a law granting public employees the opportunity to purchase additional service credit (that is, unearned service credit) as part of the Public Employees’ Pension Reform Act of 2013 (PEPRA), it declined to re-examine the “California Rule”, saying that its ruling on the additional service credit did not require it to address that rule.
“Today’s ruling is a victory for taxpayers and reaffirms what we already knew – lawmakers have the legal authority to enact fiscally-responsible reforms that repeal laws that pad public employee pensions, thereby allowing the state to address its growing pension crisis,” said Wayne Winegarden, PRI Senior Fellow in Business and Economics.
“California’s $1 trillion unfunded public pension debt means more and more dollars for public safety, parks, and infrastructure are being crowded out to pay down this massive debt. While we would have preferred that the Court address the validity of the ‘California Rule,’ today’s ruling is encouraging for reform-minded Democrats and Republicans who want to reform the system to give public employees fair but affordable pensions and safeguard budget dollars for priorities like education,” Winegarden concluded.
Cal Fire Local 2881 v. CalPERS and the State of California, challenged a pension reform law proposed by Former Gov. Jerry Brown’s administration and signed into law in 2012. The Brown administration plan altered pension formulas for newly-hired state workers and made modest changes to current pensions, such as outlawing the employee’s ability to purchase “airtime.” Airtime lets government workers buy additional years of service credit for their pensions for years they haven’t worked.
A recently-released PRI chart book on California’s pension crisis authored by Winegarden found that when using a market estimate, which better accounts for liabilities and risk, California’s pension debt is nearly $1 trillion – and just 28 percent funded. Winegarden’s research also found that state and local governments could be forced to spend between 14.5 and 23.6 percent of tax revenues over 30 years to pay down the $1 trillion pension debt, threatening funding for core priorities and potentially setting up taxpayers for painful program cuts or massive new taxes.
The union challenging the case argued that the 2012 law’s repeal of the statutory right to purchase airtime violates the so-called “California Rule,” which has been argued to prevent any future reductions in pension benefits not yet earned and requires reductions in pensions to be offset by other comparable pension benefits. This has made it virtually impossible for state and local governments to modify pension benefits for future services performed by current employees. In a brief filed in November 2017, the Brown Administration argued that its 2012 law is important because, “at stake was the public’s trust in the government’s prudent use of limited taxpayer funds.”
PRI was represented by Daniel M. Kolkey of Gibson, Dunn, and Crutcher LLP in its amicus brief. Kolkey is also a PRI board member.
To interview Dan Kolkey or Wayne Winegarden, please contact Tim Anaya at (916) 389-9774 or [email protected].
The Pacific Research Institute (www.pacificresearch.org) champions freedom, opportunity, and personal responsibility by advancing free-market policy ideas. Follow PRI on Facebook, Twitter, and LinkedIn.
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