Gullixson: How a 40-year-old bill is key to this local pension lawsuit
In September 1977 - nine months before California voters staged a “taxpayer revolt” in passing Proposition 13 - the California Taxpayers Association and the state Legislature teamed up on a less-exciting piece of watchdog legislation known as SB 439. It required leaders at every level of government to be open and straightforward when approving increases in retirement benefits.
In a letter to the state’s 39-year-old governor, Jerry Brown, state Sen. Newton Russell encouraged the governor to sign it.
“I have witnessed far too many instances of ‘end-running’ local government by employee groups asking the Legislature to grant ‘permissive’ legislation with the final result being that local government approves employee retirement benefit increases without the taxpayers ever knowing the real cost,” Russell wrote.
The bill was simple. It requires state and local legislative bodies, before approving any public pension increase, to hire a professional actuary to develop financial projections on how much the increases would cost over the long haul. These predicted annual costs then have to be made available to the public at least two weeks before the increases can be approved.
Russell, who would serve ?32 years in the Legislature, understood the loopholes in state law that led to abuses. He had warned the public about “spiking” and other shenanigans.
“I can remember … when assemblymen would stand up and present bill after bill that dealt with retirement benefits,” he told the Los Angeles Times in an interview in 1981. “Nobody had the faintest idea whether the benefit was justified. It was a subject that nobody really understood.”
But he did. As his obituary in the Times noted in 2013, he “was an expert on California’s complex public pension system and a stickler for upholding legislative rules.” He was respected on both sides of the aisle and was, as former Senate Democratic leader David Roberti of Los Angeles once said, the “conscience of the Senate.”
The governor signed the bill. And SB 439 became part of what is now Government Code Section 7507.
Here’s why this is relevant to Sonoma County today. Section 7507 is now at the heart of a lawsuit filed by a retired Santa Rosa trial attorney who is hoping to turn back the clock on Sonoma County’s pension crisis.
In his suit against the county, George Luke, a resident of Santa Rosa since 1975, argues that the county did not follow the rules when it significantly boosted public employee retirement benefits in 2002 and 2003. He claims the Board of Supervisors did not hire its own actuary to make cost projections. It did not publicly disclose those costs at least two weeks before the increases were approved and a public hearing was never noticed.
The supervisors at the time “never obtained truthful, accurate, complete and reliable information to fulfill its fiduciary duty to determine the true nature and extent of the financial risks associated with increases in pension benefits,” the suit says.
Because they did not follow the law, “the action is void,” Luke argues. “It’s like it never happened.”
Why should locals care? Because those enhanced benefits, as noted earlier this year by the Citizens’ Advisory Committee on Pension Matters, are expected to eat up nearly $50 million a year in additional expenses from the county budget between now and 2030. That’s money that could be going to park maintenance, housing assistance and other programs.
Luke is not alone in making this argument about the county’s mishandling of the benefit increases. The Sonoma County grand jury made the same contention in a 2012 analysis of the problem. Even the county has acknowledged that it didn’t follow the law, although it contends that it “substantially complied” with the procedural requirements.
The county has said that because the issue of enhanced benefits was discussed, albeit in very broad terms, during supervisor meetings and given that actuarial letters were discussed in apparent detail at two separate Sonoma County Employees Retirement Association governing board meetings, the county “substantially” complied with the law.
Nonetheless, county officials did acknowledge in their response to the grand jury five years ago that “documents could not be located to clearly demonstrate that the county made the actuarial cost impacts public at a public meeting at least two weeks prior to the adoption of the enhanced retirement benefits.”
In other words, the county screwed up.
But it may not matter anyway, because it’s not likely county attorneys are going to try to win this case on the merits of how benefit increases were handled. They are expected to seek relief through that escape route known as the statute of limitations. Luke is about 10 years too late with his lawsuit, they will argue.
Luke, who calls the statute of limitations “the refuge of scoundrels,” said that shouldn’t apply in this case because the action was never taken legally and, in any event, the impacts “continue to be a significant burden on the public.”
But it’s a defense that is going to be tough to overcome, nonetheless. San Rafael has used the statute of limitations in its argument against a similar lawsuit concerning how the city approved increased employee pension formulas from 2002 to 2006. Late last month, a judge agreed that the case should have been filed within three years of the action. Luke says he expects he may encounter a similar lower-court ruling. But given the high stakes involved, he is prepared to see this issue decided by the state Supreme Court. “I’m going as far as this needs to go,” he said. “We are going all the way.”
Is he tilting at windmills? Maybe.
But even if he fails in his quest, he highlights a story that needs to be told.
His case also highlights the importance of lawmakers who understand the need for approving laws that seem arcane one year but may prove vital down the road - if they are followed.
On that note, it should be mentioned that Sen. Russell retired from the state Legislature in 1996, three years before lawmakers approved SB 400, a California Public Retirement System-sponsored bill boosting worker benefits that opened the floodgates to pension increases at the local level.
Russell was forced out by term limits.