Pension Initiative Advances Toward Petition Stage But Is It For Real?

When initiatives are filed, the Legislative Analyst’s Office (LAO) provides an analysis, primarily of budgetary implications. Readers of this blog will know that an initiative was filed – apparently as part of the negotiations strategy of Republican legislators with the governor – which would put certain limits on public pensions.

The LAO has now provided an analysis. The initiative would affect both new hires and current employees with regard to an increase in the minimum age of retirement. It is pointed out in the LAO’s analysis that this provision might well be illegal.

The initiative also sets a 60% cap on pensions for new hires. While not illegal, that cap, if applied to UC, would substantially curtail pensions for new hires relative to what the Regents approved last December.

Whether this particular initiative has the funding behind it to gather the needed signatures, typically at a cost of $1-$2 million for commercial signature-gathering firms, is unknown. Many initiatives are filed (it only costs $200 to do so) but never make it to the ballot. Nonetheless, as repeatedly stated on this blog, UCOP and the Regents need to involve themselves in the evolving political process. It goes without saying that the pension system imposed by the initiative would not work for UC.

The initiative text is at http://ag.ca.gov/cms_attachments/initiatives/pdfs/i938_initiative_11-0007_amdt_1ns.pdf

The LAO analysis is at http://www.lao.ca.gov/ballot/2011/110298.pdf

Below are excerpts from the LAO analysis on the legal issue:

Background. Article I, Section 10 of the U.S. Constitution prohibits any state from passing a "law impairing the obligation of contracts." As with the constitutions of some other states, the California Constitution also prohibits the legislative branch of California's government from passing any law impairing the obligation of contracts. These clauses are known as the "Contract Clauses" of the U.S. and State Constitutions, respectively.

Provides Certain Protections Concerning Public Employee Retirement Benefits. In various instances over the past century, California governments have made attempts to alter or reduce pension benefits for current and past employees and to reduce payments to pension systems. In a number of cases, California courts have held that such actions violated the Contract Clauses of the U.S. and/or State Constitutions. In a number of cases, California courts have held that a public employee's pension constitutes "an element of compensation," that a "vested contractual right to pension benefits accrues upon acceptance of employment," and that such a pension right "may not be destroyed, once vested, without impairing a contractual obligation of the employing public entity." California courts have ruled that allowable modifications to pension systems for current and past employees, when they result in a "disadvantage to employees," generally must be accompanied by "comparable new advantages." For example, a reduction of one part of the benefit must be accompanied by some other "advantage" to the employee or retiree. The contractual protections apply to various aspects of the pension benefit and also have applied to certain commitments of governments to contribute to pension systems each year. In general, this means that California courts have declared that it is difficult to modify or alter public employee pension benefits to reduce governmental costs unless that change is accompanied by comparable new advantages for affected public employees and retirees…

Likely to Be Challenged in the Courts. This measure does not appear to provide a comparable new advantage for existing employees to offset the possible changes to the retirement age described above. Accordingly, it is likely that this part of this measure—reducing retirement benefits for existing public employees—would be challenged in the courts. This measure states that its various provisions are "severable," meaning that if one part of the measure is held invalid by the courts, this would not affect the other parts of the measure that can still be put into effect.