December 29, 2012 07:39 AM UTC

Public Pensions: States Trying to "Change the Ground Rules in the Middle of the Game."

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• by: PolDancer

Truth-Out Article – Pensions: A Promise is a Promise . . . Unless it’s Inconvenient.

Legal Scholars: “What the states are trying to do is change the ground rules in the middle of the game.”  “The state is just trying to find any argument that allows them to get out of their obligations and that will stick in court.”

(These politicians are class acts.)

In 2010, a majority of Colorado state legislators, Colorado PERA public pension administrators, PERA trustees, and PERA and public sector union lobbyists – all conspired to perpetrate the greatest theft in the history of our state.  Colorado news media largely supported the theft and have accordingly attempted to bury the story.

A recent article (December 23, 2012) by the organization Truth-Out places Colorado’s breach of public pension contracts in perspective.  It is one of the best articles I’ve seen addressing state attempts to breach public pension contracts.

Read this article by Truth-Out . . . and realize the depravity of the crime committed by Colorado legislators in 2010.

Link to Truth-Out article:

http://truth-out.org/news/item…

The Truth-Out article addresses the taking of contracted retiree COLA benefits by the State of Rhode Island in 2011, the resulting litigation, the impact of the Rhode Island pension theft on the state’s public sector retirees, and comments on current public pension litigation by the nation’s foremost public pension legal scholars.

As we have seen, Rhode Island’s 2011 taking of public pension benefits was supported by the Arnold Foundation.  According to Texas AFT, Enron Billionaire John Arnold is funding “attacks” on public pensions across the United States:

” . . .the big-money man behind the attack on state and local pension funds, from California to Texas and beyond, is one John Arnold, a billionaire Houston hedge-fund operator who walked away from his role as an Enron trader with millions of dollars in bonuses before that notorious company went bankrupt.”

Link:

http://texasaftblog.com/hotlin…

“John Arnold once was renowned for his lucrative natural gas trading at Enron.  He never was implicated in wrongdoing at the now-infamous company, but Democratic U.S. Sen. Dianne Feinstein of California once criticized him for allegedly refusing to answer, during a deposition, whether he had manipulated West Coast energy markets.  A committee representing former Enron employees sued Arnold and other top traders for receiving huge bonuses, including $8 million for Arnold, right before Enron collapsed.  Arnold and the committee settled on confidential terms, according to court records.”

Link:

http://californiawatch.org/dai…

Colorado media have attempted to bury the story of the state’s attempted theft of public pension benefits in 2010.

This fact is clear from the lack of coverage by Colorado media of the Colorado Court of Appeals ruling last October.  In October, the Colorado Court of Appeals held that Colorado PERA retiree pension COLA benefits are indeed contractual obligations of the State of Colorado and other Colorado PERA-affiliated employers.

The court case Justus v. State, involves BILLIONS of dollars of Colorado state and local government contractual public pension obligations.  Yet, the October decision in the case by the Colorado Court of Appeals was the subject of a single news story as far as I can tell.

Unfortunately, this single news account of the October Colorado Court of Appeals decision was a work of fiction by Denver Post reporter Tim Hoover.  Have a look at Tim Hoover’s article published in the Denver Post on October 12, 2012:

Link:

http://www.denverpost.com/poli…

For some reason, Hoover declared the Court of Appeals confirmation of the contractual nature of PERA retiree COLA benefits as a “win” for Colorado PERA.  I addressed this Denver Post article in an earlier blog post:

The Denver Delusional Post.

In the case, Justus v. State, Colorado PERA retirees (plaintiffs) are suing the State of Colorado and the state’s pension administrator Colorado PERA (defendants) for the breach of retiree public pension contracts.

The October 12, 2012 Denver Post article proclaims the recent ruling by the Colorado Court of Appeals a “win” for the defendants in the case Justus v. State.

Fact #1: The pension administrator Colorado PERA (defendant) was quite content with the initial 2011 Denver District Court determination that Colorado PERA COLA benefits were not contractual.  Fact #2: The Colorado Court of Appeals has declared that Colorado PERA COLA benefits ARE indeed a contractual obligation of PERA and PERA-affiliated employers.  

So, how is it possible that Tim Hoover of the Denver Post in his October 12, 2012 article construes this outcome as a “win” for Colorado PERA?  (Wishful thinking or clueless?  Having read many Hoover articles relating to Colorado public affairs, I assure you the answer is not “clueless.”)

The Colorado Court of Appeals ruling has received scant mention in the press nationally.  If it were not for the efforts of our dogged public pension rights bloggers in the United States (bless them), the “powers that be” may very well have succeeded in suppressing news of this important public pension decision!  (Colorado PERA officials have been hoping that many other states will attempt pension COLA theft.   Where a crime is ordinary, the conscience of the criminal is assuaged.)

Now to the excellent Truth-Out article, a few excerpts and my reactions:

“Then, in 2011, the Rhode Island legislature, claiming that the state’s retirement system had become unsustainable, passed a sweeping law – euphemistically dubbed the Rhode Island Retirement Security Act – that made drastic modifications to the pension scheme.”

(My comment: The 2011 Rhode Island act included breach of public sector retiree pension COLA contracts.)

“The revised system will remain in effect until the pension fund reaches an 80 percent funding ratio . . .”

(My comment: In their 2010 pension COLA-theft legislation, Colorado state legislators propose to steal public pension benefits until a 100 percent actuarial funded ratio is achieved.  It occurred to the proponents of SB 10-001 . . . well, if we are going to be thieves anyway, let’s GO BIG!  As we know, Fitch Ratings considers public pensions with an 80 percent actuarial funded ratio to be “well-funded.)

Rhode Island retiree Glover:

“I had my plan in place,” he said.  “I did everything that I was told to do and made my plans based on everything I had been told.  Then the state changed its mind and decided to pull out.  I just don’t think that’s fair.”

“The state made a promise to me,” he said, “and now it’s reneging on that promise. That isn’t how it’s supposed to work. When I grew up, a promise was a promise was a promise.”

“Our whole system of economics in America is based on trust and contracts,” he said. “I just think that to allow the state to get out of its promises like this runs against that entire idea.”

Rhode Island public employees and retirees sued over the breach of their pension contracts in 2011:

“The Rhode Island constitution, like the federal Constitution, prohibits the state from passing any law ‘impairing obligation of contracts.'”

“The argument put forward by the Rhode Island officials who are named in the lawsuit – including Governor Lincoln D. Chafee and State Treasurer Gina Raimundo – is that the promises the state has made to its workers about their pensions do not constitute contracts, and are thus not legally enforceable.”

(My comment: The Colorado Court of Appeals has found that Colorado PERA retiree pension COLA rights are contractual, from the October decision: “We consider McPhail and Bills dispositive [indisputably bringing to a conclusion a legal controversy] of whether plaintiffs here have a contractual right to a particular COLA.”  In the cases McPhail and Bills, the Colorado Supreme Court “found a contractual right based on members’ provision of services and contributions to the retirement fund.”)

Comments from public pension legal scholars:

“‘The entire public pension system is built on the understanding that pensions are legally protected promises,’ said Richard Kaplan, a professor at the University of Illinois College of Law. ‘That idea has been foundational for at least the last half-century.'”

“Since the middle of the century, however, courts have generally acknowledged that states cannot promise pension benefits to their employees as an inducement to get them to work for the state and then renege on those promises. The large majority of states have protected pensions under the theory that the promise of a pension represents a form of contract . . .”

“The legal understanding has been, ‘That is your money, and the state can’t take it away.'”

“The vast majority of states – 41 – apply a contract theory to their employees’ pension rights. All of these states have constitution provisions that – mirroring the contract clause of the federal Constitution – prohibit the passage of any law that impairs the obligation of contracts.”

“‘It cuts against decades of precedent,’ Kaplan said, ‘not to mention basic, commonsense notions of what pensions are and what’s fair.'”

“According to Secunda of Marquette University, a shift back towards a gratuity model would be ‘disastrous.’  ‘What the states are trying to do is change the rules in the middle of the game,’ he said.”

(My comment: Here’s a link to Paul Secunda’s paper on public pension law:

http://scholarship.law.marquet…

“They’re saying, ‘We’ll play by a certain set of rules until the game is not in our favor anymore, and then we’ll change them.’ Try explaining that to a five-year-old and see if they think it should be allowed.”

“Kaplan agreed. ‘What the states told these workers was that ‘if you do x, you’ll get y.’ You can be sure that the states didn’t say, ‘if you do x, and we feel like we can afford it, you’ll get y.'”

“Joseph Slater, a professor of law at the University of Toledo and a labor historian, explained that, historically, states and local governments have used the promise of secure pensions to justify paying public employees less than they might earn in the private sector.”

“‘If they knew that that promise didn’t really mean anything, people might have made different decisions about what job to do,’ he said. ‘This is part of the reason why they decided to dedicate their lives to public service.'”

“According to Richard Kaplan, a professor of law at the University of Illinois, proving that reneging on their pension obligations is necessary to achieve an important public purpose is a high bar to reach, because that argument implies that the state’s ability to raise taxes to keep its promises have been exhausted.”

“‘That argument might make sense if the state is really in extremis, if we’re talking about going without teachers and firefighters,’ Kaplan said. ‘But even in that case, the state would have to convince the court that raising taxes was somehow off the table.'”

(My comment: Rather than retaining its revenue stream in order to meet its contractual obligations, the Colorado General Assembly has deliberately slashed its available revenues in the last decade.  Further, the General Assembly has pumped one-half billion dollars into public pension funds that ARE NOT its responsibility . . . those of Colorado local governments [Old Hire Police and Fire pension plans].  Finally, the General Assembly continues to make $100 million discretionary grants of property tax relief in spite of the fact that it is in breach of contract.  It is perfectly clear to me that the Colorado General Assembly has not one iota of respect for its contractual public pension obligations.)

“According to several legal experts, the argument that pensions enjoy no contractual protections can best be seen as a tactical decision on the part of the states to try to get around what they originally intended when they promised certain pension benefits to their employees.”

“The state is just trying to find any argument that allows them to get out of their obligations and that will stick in court.”

“Stein agreed, and added that the context for the Rhode Island lawsuits and several others around the country was that past lawmakers persistently failed to make their necessary contributions to the pension system.”

(My comment: As we have seen, the Colorado General Assembly has skipped billions of dollars of “annual required contributions” to the Colorado PERA pension trust funds in just the last decade.)

Link to Truth-Out website:

http://truth-out.org/

Truth-Out wiki link:

“As an organization, Truth-Out works to broaden and diversify the political discussion by introducing independent voices and focusing on undercovered issues and unconventional thinking.”

http://en.wikipedia.org/wiki/T…

The National Public Pension Coalition is drawing attention to this Truth-Out article.  “Since 2007, the Coalition – representing millions of teachers, nurses, police, firefighters and other public sector employees – has worked to protect the financial security of working families who rely on public pensions.  NPPC works with a national network of state and local coalition efforts to achieve this goal.”

Link:

http://www.truthaboutpensions….