But if the court sides with Brown, it could open the possibility of future governors and legislatures modifying current employees’ pensions for prospective work, and perhaps setting a new precedent in which already negotiated benefits are fair game. If the court sides with the union, it would bind the state’s finances and commit taxpayers to paying already expensive retirement benefits.
On a larger scale, the case also could mark the end of a Brown-led era of fiscal reform in Sacramento. A blue-state Democrat with a lifelong tendency against the spending his party was known for, the frugal Brown had the experience and political capital to challenge public employee unions who typically hold powerful sway over Democratic politicians.
Newsom is newer and younger, and won his office in part with strong union backing. In campaign statements, he pledged to unions that he will protect their pensions; in fact, state firefighters cited Newsom’s commitment as one reason for giving the governor-elect their endorsement.
Meanwhile, Democrats, who have been a majority for some time, also with strong backing overall from organized labor, only gained ground in the November election. As the Legislature convened on Monday, they had, not just a supermajority but a “mega-majority” in both chambers.
Both of those developments favor the priorities of public employee unions, as does the seemingly flush economy of the moment. California is projecting a $15 billion surplus this year, compared to a $27 billion deficit when Brown returned for his second stint in the governor’s office. The unemployment rate stood at 4.1 percent in October, compared to 12.1 percent when Brown was sworn in in January 2011.
When the Great Recession cratered state finances and the public gained awareness of generous retirement benefits, Brown was able to leverage those issues to successfully champion a package of changes from the Public Employee Pension Reform Act of 2012 with tacit approval from labor leaders.
While Brown did not get key changes needed to slow down the growth in retirement costs, the Legislature did agree to what the governor called the “biggest rollback to public pension benefits in the history of California.” Among other money-saving measures, Brown was able to raise the retirement age for new employees, ban retroactive pension increases, stop practices such as hoarding vacation and sick time to inflate calculations for retirement benefits and ban the purchase of additional years of service, known as “airtime.”
Multiple labor unions sued, arguing that Brown’s 2012 changes infringed on their employer’s contractual obligation to provide retirement benefits at the level that was promised on their first day of work. That premise—the California Rule—left state and local governments with little room for savings.
Prior to Wednesday’s high court hearing, lower courts weighed in on the precedent with mixed messages.In a 2016 ruling upholding a lower court’s decision, Justice James A. Richman of California's First District Court of Appeal broke from decades of court decisions in finding the Legislature can alter pension formulas for current employees and reduce their anticipated retirement benefits. He wrote that a public employee has a right to a “reasonable” pension, not “ the most optimal formula of calculating the pension.”
But another appeals court came to a different conclusion about the “California rule” by deciding in favor of union employees in Alameda, Contra Costa and Merced counties.While the justices agreed there are limits to the California Rule, they said benefit adjustments require “compelling evidence” showing that the changes are necessary to the success of the pension system.
The Supreme Court agreed to take up the issue and is first hearing the firefighters’ case over whether airtime is a vested right. While Adams, for the firefighters union, said he hopes the court will recognize that airtime is earned through service, Brown’s lawyers argue taking away the optional benefit doesn’t mean the employee gets less in pensions.
Brown’s lawyers wrote in a brief that although airtime was thought to be cost neutral, employees could purchase fictional years of credit “often as much as 40 percent below the actual cost.”
Today, the California Public Employees’ Retirement System is carrying $111 billion in unfunded liabilities and the California State Teachers Retirement System faces $76 billion in unfunded liabilities.
During Wednesday’s oral argument in Los Angeles, the justices seemed to be searching for where to draw the line that would protect workers without giving them limitless retirement benefits.
Chief Justice Tani Cantil-Sakauye questioned labor attorney Greg Adam about how airtime is protected by the state Constitution when the employee hasn’t performed the work to earn it. And Justice Goodwin Liu wondered aloud whether pension rights extend to life insurance, health insurance or a sabbatical leave that may be offered during employment.
Then Liu turned to Brown’s attorney, Rei Onishi, to ask if the state has a right to change benefit formulas midstream in a worker’s career, which stikes at the heart of the California rule. Onishi said yes if it applies to prospective work. He reasoned that because a worker hasn’t earned the benefit, it’s not an impairment.
