Two California appeals court rulings that public employee pensions may be changed so long as the changes are "reasonable" will probably not cause ripple effects in Illinois despite its need for some kind of financial miracle, a government watchdog researcher said recently.
"Each of the 50 states have their own constitutions and laws framing government benefits," Bill Bergman, director of research at the Truth in Accounting and a regular blogger on financial issues, said in a Chicago City Wire email interview. "Illinois is not likely to be significantly impacted by this ruling - at least under current law."
But the cases still might offer some intrinsic value, Bergman said.
"The California news is a reminder how important legal developments and the resolution of legal ambiguity are for anyone trying to quantify the value of financial assets and liabilities," he said.
The eyes of the nation, especially in states like Illinois that are teetering under the weight of massive public debt, began to be drawn to California in August when the state's First District Court of Appeal, Division Two, ruled in a Marin County case that public retirement plans are not immutable, that they can be reduced and that all public employees can expect is a “reasonable” pension.
The unanimous ruling in Marin Association of Public Employees v. Marin County Employees’ Retirement Association addressed the so-called "California Rule," prior regulations and court rulings that guaranteed public employees the pension in place when they were hired.
That ruling was appealed to the California Supreme Court in October, which agreed to hear it.
The second California appellate court ruling came in December when a three-judge panel in San Francisco affirmed a 3-year-old state pension reform and said public employees should not have the right to enhance their pension by purchasing retirement credits. The court cited the Marin County case and used similar language, stating that public employees have a right to a "reasonable" pension but "not an immutable entitlement to the most optimal formula of calculating the pension."
Those rulings -- that legislators in Sacramento can change the retirement benefits for existing public employees and can do so in midstream so long as the benefits are "reasonable" -- is causing quite a stir. The cases are headed to the California Supreme Court, where some observers are saying mistakes can be corrected and state legislators can address high public-employee pension costs.
The second appeals court ruling was a massive blow to California unions, according to Stephen Frank's blog, California Political News and Views, Jan. 5 edition.
"This may be the most important legal decision to save the fiscal condition of California in a generation," the blog said.
Other news outlets in California agreed.
"That’s a radical departure from decades of rulings suggesting pension benefits could not be reduced," the Lake County Record-Bee said in an op-ed piece. "Once granted higher accrual rates, workers were thought to be permanently entitled to them. Whether the Supreme Court agrees will profoundly affect California lawmakers’ ability to slow soaring retirement costs strangling state and local governments. It also might enable practical unions to negotiate changes for current employees, depending upon how broad the decision is."
All of that probably will stay in California, Bergman said, adding that he wouldn't offer any advice about whether Illinois should, somehow and despite the state's constitution, be allowed to declare bankruptcy as part of getting out from under its own crushing public debt.
"At Truth in Accounting, we do not have a policy preference regarding revisions to the bankruptcy code, etc.," he said.
Daniel DiSalvo, a senior fellow at the Manhattan Institute, has advanced the idea as a potential game-changer in offsetting the widening epidemic.
“This would be a way of allowing cities to use the Chapter 9 process to perhaps save themselves from themselves,” DiSalvo told the Chicago City Wire. “When you consider that neither the states nor the cities ever want to go the route of bankruptcy, intervention bankruptcy gains even more credibility as a viable option.”
Bergman also declined to discuss whether the federal government under President Donald Trump should take action to assist the states in their various financial crises.
"Congress should focus on getting the federal government's finances ship-shape, with a priority on improving government accounting systems and internal controls," he said.
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