The biggest obstacle to any meaningful resolution to the state’s pension crisis is the “California rule.” This judicial directive dating back to 1955 established the legal premise that public employees are not only entitled to the retirement benefits they accrue but they also are protected from any diminishment of those benefits until the day they change jobs or retire — regardless of the financial challenges facing their employer.
As we have noted before, this is absurd. It’s an obligation that threatens to drive cities and counties into bankruptcy — and it needs to change.
Fortunately, the opportunity has arisen as the California Supreme Court is on the verge of deciding whether to adjust that standard, which has prevented cities and counties across the state from stopping the “hollowing out” of public services in order to fund soaring retirement benefits.
So far, Gov. Jerry Brown has joined two state appellate courts in encouraging the high court to alter the “California rule.”
Even Sonoma County, which has made modest reforms but has long claimed it was powerless to create any meaningful change at the state level, has gotten into the act.
“Pension costs have increased dramatically and, as trending, are not sustainable,” County Counsel Bruce Goldstein wrote in an amicus brief authorized last month by the Board of Supervisors. In the brief, co-authored with Solano County, county supervisors argued that counties “need more flexibility” to establish sustainable benefits.
“Unless the counties retain the ability to address these escalating costs they face the unconscionable choice of sacrificing services to the public for providing retirement benefits to employees,” Goldstein wrote.
In many ways, services are already being sacrificed. As noted last year by the Sonoma County Citizens’ Advisory Committee on Pension Matters, retirement costs are expected to eat up nearly $50 million a year in additional revenue from the county budget between now and 2030. That’s money that could be and should be going to parks, road maintenance, housing assistance and other programs.
This is a key juncture for the state as cities and counties across California continue to struggle with retirement obligations, despite nearly 10 years of strong returns on pension investments. While Sonoma County says its retirement obligations are 85 percent funded, the California Public Employees’ Retirement System, the nation’s largest public pension fund, has only about 68 percent of the assets needed to cover its liabilities. The state’s contribution to the CalPERS system is twice what it was eight years ago, and neither the state nor local agencies are prepared for a downturn in the economy. Public agencies will never be able to invest their way out of this crisis. They need help, and the state Supreme Court is in the best position to provide it.
Kudos to Sonoma County for taking the right stand on this issue.