State Supreme Court rules San Diego pension cuts were illegally placed on ballot

Aug. 02--The California Supreme Court ruled on Thursday that San Diego's six-year-old pension cutbacks were illegally placed on the ballot, overturning an appeals court ruling last year that had upheld the cuts.

The Supreme Court stopped short of reversing the cuts, instead ordering the appeals court to evaluate whether the city must spend millions creating retroactive pensions for 4,000 employees hired since the cuts took effect.

That was the remedy prescribed three years ago by the state's labor board, which said the city must make employees hired since 2012 "whole" by compensating them for the loss of pensions and paying them interest penalties.

The appeals court didn't evaluate that proposal last year because the court ruled the pension cuts had been placed on the ballot legally, overturning the state labor board's decision.

Estimates of how much making the employees whole would cost the city have ranged from $20 million to $100 million, depending on a variety of factors.

The ruling, which was unanimous, vindicates claims by city labor unions that it was illegal for then-Mayor Jerry Sanders to push the Proposition B pension measure onto the ballot in 2012 without labor negotiations.

The measure, which was approved by more than 65 percent of city voters, replaced guaranteed pensions with 401(k)-style retirement plans for all newly-hired city employees except police officers.

Sanders maintained he took the action as a citizen, not as mayor, and therefore negotiations with unions weren't required.

The Supreme Court disagreed, concluding that Sanders was obligated to meet with the unions before placing the measure on the ballot because he used his power and influence as mayor to support the measure.

"Sanders supported the signature-gathering campaign," the court said in its ruling, which was written by Justice Carol Corrigan. "He touted its importance in interviews, in media statements, and at speaking appearances."

In Thursday's ruling, the court stressed that it wasn't taking a position on pension cuts.

"We are not called upon to decide, and express no opinion, on the merits of pension reform or any particular pension reform policy," the ruling said.

San Diego is the only city in California to discontinue pensions for new hires, so the ruling could have an impact across the state as other city and county governments consider pension cuts and how they can be legally enacted.

Supporters of Proposition B have said they may place a similar measure on a future ballot in the cuts are eventually nullified.

On Thursday, former Councilman Carl DeMaio said he was pleased the Supreme Court didn't overturn the city's pension cuts.

But Demaio said that may still occur.

"Taxpayers must be very concerned by what may happen next," he said in a news release. "Specifically we are concerned that the Supreme Court ruling opens the door for the lower court to consider a yet-undefined "remedy" for the so-called violation of the city of San Diego's duty to meet and confer on pension changes before implementing them."

DeMaio said the remedy could be as small as a fine for not meeting and conferring, or as big as overturning part or all of Proposition B.

DeMaio vowed to appeal any remedy prescribed by the appeals court to the Supreme Court.

Based on the labor board proposal that the city make employees whole, the actuary for the city's pension system estimated in late 2015 that it would cost the city $20.1 million for 1,600 employees hired without pensions at that point.

But the number of employees hired without pensions has increased to more than 4,000 since then, more than doubling the city's potential cost.

In addition, new demographic studies showing the city had been underestimating life expectancies for its retirees prompted city pension officials to significantly increase the projected cost of pensions in 2016.

The labor board recommendation, however, said the city could count against its costs the many millions it has contributed to 401(k)-style retirement plans for those workers.

Because of the particularly strong performance of the stock market since 2012, those retirement plans are worth more than expected. That could make the city's costs relatively minimal.

Employees would also be required to contribute to pension created retroactively for them, further reducing the city's costs.

The state labor board ruling didn't recommend any changes for a separate element of Proposition B, a five-year freeze on pay raises for city employees that expired June 30.

The pay freeze was not part of the labor board ruling because the city's labor unions agreed to the pay freeze during negotiations with Mayor Bob Filner in 2013.

[email protected] (619) 269-8906 Twitter:@UTDavidGarrick

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