That’s all I can say to info such as this:
“If you make changes to pension benefits, you’re going to be violating a contract,” Dingley said. “You’re not just violating ordinary law, you’re violating a provision of both the U.S. and the state constitution, and courts take that very seriously. There are no shortcuts here. You have to go through the process … so that the court will take seriously the changes you make.”
In terms of what courts will allow, Dingley said, “There aren’t any hard-and-fast rules. There’s new court decisions coming out all the time. … The law looks at keeping order, but it also looks at fairness.” NEARI’s Bob Walsh, however, argues the unsettled nature of the law is a reason why the state should start negotiating with the unions.
We’re still a long way from having a court take up last year’s Rhode Island Retirement Security Act; it doesn’t take effect until July 1, and it hasn’t been challenged yet. But an older lawsuit challenging cost-of-living adjustment (COLA) cutbacks made in 2009 and 2010 is slowly moving toward a trial before Judge Taft-Carter.
And while I do understand some of the reasoning behind requiring employee contributions to pensions being seen as breaking a contract, I do not understand the reasoning that led to benefits that had never been promised before decided via judge that yes, these newly-found benefits are an inviolable part of the contract:
The California Public Employees Retirement System, which covers about half of the non-federal government employees in the state, sponsored anti-spiking legislation in 1993 making it more difficult to manipulate final pay used to determine pension amounts.
Similar legislation for the county systems cleared the Senate in 1994 but died in the Assembly. In 1997 the state Supreme Court issued a unanimous ruling in a suit filed by Ventura County deputy sheriffs that opened the door for more spiking.
The court said that in addition to the salary any cash commonly received in a pay grade or class for other things, such as uniform allowances and unused vacation time (but not overtime), must be counted toward pensions under the 1937 act.
The ruling was made “even though through the previous years in collective bargaining the counties and their members had agreed that these additional bonuses would not be treated as pensionable, which is how they got them over base salary in the first instance,” Harvey Leiderman, a fiduciary counsel, told the legislative hearing.
The court ruling created pension debt because annual contributions by employers and employees had not been made for pensions based on the additional pay. To cover the new “unfunded liability,” many county systems dipped into reserves built up over years.
Let it be understood — public employees in California had been given various bonuses under the strict understanding that these bonuses would not count toward pension payments. And then they went to the courts, and changed this.
So, do you see why I’m skeptical that Quinn’s “clever ploy” will actually work?
What will happen is that they’ll say “sure, we’ll play along” and then take it to the courts and get the old benefits reinstated.
Speaking of moments of “That’s it?” reactions, here’s the 1-page pension fun facts, and the glorious Illinois pension reform plan, also one page. (both PDFs) And talk about the art of understatement – from the pension facts sheet:
- The State did not always adequately invest in the pension system
- The State increased retiree benefits without sufficient revenue to pay for the increases
- The State awarded taxpayer-funded health insurance benefits to retirees that are significantly more generous than those offered by comparable states
….”did not always adequately invest in the pension system”?!
Oh, do tell.
Here’s a taste:
If Illinois does not implement meaningful changes to further align revenue and spending and address its accumulated deficit (accounts payable and general fund liabilities) for fiscal 2012, we could lower the rating this year. The outlook also reflects what we consider ongoing weakness in the state’s pension funds and lack of action to meaningfully address the liability. A downgrade could also be triggered if pension funding levels continue to deteriorate and there is not credible program in addressing the liability. In addition, we could lower the rating by more than one notch if the state makes no progress on structural budget solutions and does not address the significant pension liabilities and associated cost pressure. (Pg. 3, Illinois General Obligation Analysis-03/12/12)
That is from S&P, the guys who brought the downgrade of the U.S. from AAA to AA. So you know they’re not messing around.
In any case, all of these legal theory becomes moot once the money dries up:
But the next series of major cities and counties in danger of defaulting on their debt can hardly point to one single decision for their malaise. Whether it be Detroit, Miami or Providence, Rhode Island, their problems have a lot more to do with financial policies that put them on course to live well beyond their means.
Municipal defaults have shot up since 2007 and are on pace for another high year in 2012, according to Richard Lehmann, publisher of the Distressed Securities Newsletter.
Many failures will be due to local politicians’ willingness to give unionized local government workers lucrative pensions and health care benefits when times were good. For others, the housing bust was enough to destroy their real estate tax base. They almost all share the failure to prepare for a rainy day.
Persistently high jobless rates and reductions in state and federal aid, as well as round after round of government layoffs, service cuts and fee increases in recent years, leave mayors and other local officials with few ready remedies, according to Moody’s Investor Service Managing Director Naomi Richman.
At an industry conference last month in Philadelphia, Richman said, “A lot of the easy fixes are gone.”
So, public unions, have fun clinging to your court rulings that say you must be paid benefits that had never been promised through contracts in the first place, when you find everyone has moved away and all that is left are similar tax-dependents.
Mr. Kotkin also notes that demographic changes are playing a role. As progressive policies drive out moderate and conservative members of the middle class, California’s politics become even more left-wing. It’s a classic case of natural selection, and increasingly the only ones fit to survive in California are the very rich and those who rely on government spending. In a nutshell, “the state is run for the very rich, the very poor, and the public employees.”
The law may be an ass, but it does seem to reflect those making it.
“If the law supposes that,” said Mr. Bumble,… “the law is a ass—a idiot. If that’s the eye of the law, the law is a bachelor; and the worst I wish the law is that his eye may be opened by experience—by experience.”
An independent arbitrator ruled last week that even if injured former cops are convicted of on-the-job crimes and sentenced to jail, Montgomery County must keep paying them disability retirement benefits after they are released.
Councilman Andrews pointed out that the law provides 52.5 percent of salary to police officers retiring on partial disability, and 70 percent for those on full disability.
The arbitrator’s ruling, by contrast, would have given 60 percent for partial disability and 67 percent for full disability — that is, more money for bum knees and less for paralysis. Given that 90 percent of the disability claims are for partial disability, this would actually cost more, do less for those most in need, and blur the distinction between on-the-job injuries that allow officers to continue working and those that end a career. Council members should stand their ground.
To be sure, this is an arbitrator, not a judge.