Will California permit local governments to fix their broken pension systems and achieve financial sustainability? That is a question the state Supreme Court chose to take when it recently agreed to hear a case against San Diego’s 2012 voter-approved pension reforms. While the case focuses on San Diego, the court’s decision will have statewide implications that could hamper local governments’ ability to tackle rising pension costs.
Like many California public agencies, San Diego dug a hole for itself in the early 2000s by retroactively increasing public employees’ pension benefits. The benefit enhancement gave non-uniformed government workers the chance to retire at age 55 on an annual payment equal to the number of years worked for the city multiplied by 2.5 percent of the worker’s final salary. Rather than properly fund the higher benefits, the city doubled down on its risky strategy of making pension contributions lower than were recommended, instead simply hoping investment returns would make up the difference.
By 2012, San Diego faced an unfunded pension liability of $2.3 billion and was in a fiscal crisis. Voters approved Proposition B by an overwhelming 66 to 34 percent margin in 2012.
The measure ended defined benefit pensions for all newly hired, non-police employees. Instead of guaranteed pensions, they’d get 401(k)-style retirement plans similar to those most private sector workers use. The reform did not impact existing government employees in deference to the “California Rule” — a state court doctrine that prohibits public agencies from reducing benefits packages promised to existing employees, while permitting enhancements to these benefits regardless of whether they are properly funded.
Proposition B reduced financial risks for taxpayers and is one factor helping to right San Diego’s fiscal ship. The city scored better than Los Angeles, San Jose and San Francisco in a recent ranking of city fiscal strength published by the California Policy Center. But San Diego’s return to fiscal health could be halted if the state Supreme Court overturns Proposition B.
The measure first came into legal jeopardy three years after its passage. In December 2015, the California Public Employee Relations Board ruled that Proposition B violated California’s Meyers-Milias-Brown Act, which requires city officials to “meet and confer in good faith” with union representatives before deciding whether to change terms and conditions of…