The Orange County appeal of the pension benefits for
Deputies was denied by the California Supreme Court. In a careful review of the decision made by
the Appeals Court, we find the same self-serving protection that judges always
give to government employee pensions.
The issue arose because exuberant promises of high
investment returns in 1999 made pension grants look very affordable. The OC Supervisors in 2001 approved the
changes, and affirmed them in renewals of the bargaining agreement in 2003,
2005 and 2007. But in 2008, the new OC board
looked at the issue as one granting a huge benefit that was not properly funded,
a $100 million unfunded grant of deferred compensation for services already
provided.
The Appeals Court based its pre-determined opinion
protecting govt pensions on the confusing and incomplete disclosure rules
currently in place. Since the Government
Accounting Standards Board (GASB) has not adopted a rule requiring balance
sheet disclosure of pension liability, the court said it is not a real
liability. Prior to 1994, there was no
standard worth mentioning. In 1994, GASB
stated that unpaid contributions should appear on the balance sheet as a
liability. (Private employers are
required to show their underfunding on the balance sheet.) In 2010, GASB proposed a tougher standard
that would show the unfunded liability more completely, and require that it be
funded during the period employees are working.
But the 2010 proposal has not been adopted, and the court just
completely ignored it in any event.
Here are some of the other arguments they used.
. Actuaries have many methods of determining pension costs,
allocating pensions between past and future service. The method used to post past service liability
was just one of several methods to determine future costs, so it is not a real
liability.
. The opinion of the Attorney General in 1982 (hmmm.. who
was governor then?) was that "The actuarial term ‘unfunded liability’ fails to
qualify as a legally enforceable obligation of any kind."
. Investment results could make the problem go away in the
future, citing a San Diego 2010 decision that it "may have been avoided
entirely if, for example, the retirement fund experienced better than expected
investment returns..", the most damning of the wishful thinking in the
Appellate decision.
. The 1994 GASB rules do not require disclosure of liability
unless the annual contributions have not been paid. In California, CALPERS and other public plans
have been very effective in forcing the payments to be made, so this argument
is that no liability ever existed.
. "Imprudence, however, is not unconstitutional", probably
the most amusing quote from the case, was the court’s way of saying that the
public agencies are not allowed to fix their problem once it was created.
Sadly, the taxpayers of OC will have to take their arguments
to the people and above the head of the courts who won’t help solve the
problems. This is a constitutional issue
that the courts are forcing local government into expenses they cannot
pay. Expect a proposed constitutional
amendment through the petition process.
This also reinforces the reasons we need the same rules for
public plan benefits that private plans have, namely that you can stop the pain
for the future by freezing or reducing benefits, but you cannot take away what
has already been earned. If the courts
cannot understand this need for fiscal responsibility, then the governing
bodies will have no alternative but to fire existing employees to stop their
excessive expenses and only hire new ones at a lower benefit level. That is the unintended consequence of the
decision.