May 12, 2012 05:05 AM UTC

The Great Colorado Heist: Review of the Secunda Paper.

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• by: PolDancer

I just had a look at Paul Secunda’s paper addressing public pension law in the United States.  The title of the paper is “Constitutional Contracts Clause Challenges in Public Pension Litigation.”  Secunda is Associate Professor of Law at the Marquette Law School.

You can read the paper here:

http://lawarchive.hofstra.edu/…

I took note of the following passages from Professor Secunda’s paper:

Secunda:

“Additionally, as mentioned above, a law is even more stringently examined when the law impairs a contractual relationship that the state is a party to, as opposed to a contractual relationship between two private parties.” (Spannaus, 438 U.S. at 244 n.15.)

The State of Colorado is a party in the case Justus v. State.  Why has the contractual nature of the Colorado’s PERA COLA provisions not been “stringently” examined by the Colorado judicial system?  I don’t believe that a summary judgment constitutes “stringent” examination.

Secunda:

“To determine whether a state law is unconstitutional pursuant to the Federal and State Contracts Clause, courts essentially ask: (1) is the contractual obligation impaired; (2) is the impairment substantial; and (3) is the impairment justified?”

First, the plain language of the Colorado PERA COLA statutory provisions grants an “automatic,” fixed COLA to vested PERA retirees going forward.  The statute provides that the COLA “shall” be paid.  The sponsors of HB 00-1458, and the Governor who initiated the bill, clearly intended that the COLA rate of 3.5 percent act as an inducement for early retirement of older “expensive” employees (to save the state money.)  Employees who retired based on this statutory contract would not have left their careers in exchange for a temporary “ad hoc” COLA.  Why would they do that?  Why would they take the risk that the COLA would be reduced again in a year or two?  PERA members who sent PERA money from their 401Ks to purchase “service credit” in the pension would not have entered that contract if they knew that the state intended to renege on its contractual 3.5 percent COLA obligations.  Why would they pay thousands of dollars for a benefit that the Legislature could legally eliminate at the next legislative session?  Why would these PERA members agree to such substantial financial commitments if they lacked a “reasonable expectation” that the General Assembly would honor the 3.5 percent COLA obligation?  

Further, the impairment of the PERA retiree’s pension contract by SB 10-001 is undisputedly “substantial.”  Some PERA retiree’s will lose hundreds of thousands of dollars over the course of their lives if SB 10-001’s COLA provisions withstand court muster.  In some cases the taking could reach one-quarter of a retiree’s lifetime pension benefit.  This amount of money is “substantial” in the lives of nearly every citizen of the United States . . . it is life-altering.

Finally, the impairment inflicted by SB 10-001 was not justified.  Legal, prospective pension reform options such as those that are being adopted across the country were intentionally ignored by the Colorado General Assembly.  The General Assembly conducted no due diligence prior to adopting SB 10-001 . . . it did not appoint a public pension study committee, instead adopting without scrutiny legislation initiated by outside, narrow interests.  The General Assembly abdicated its responsibility to protect fully-vested public pension rights to a few dozen hired lobbyists.

In the last ten years, the Colorado General Assembly has created a study committee whose task it is to manage the building in which the Legislature meets.  The General Assembly has created a dedicated committee to study record keeping . . . the Legislative Interim Study of the Management, Storage, Retrieval and Archiving of State Records.  One would think that a matter of such consequence as meeting the state’s contractual pension obligations would warrant similar attention from the Legislature.  The typical member of the Colorado General Assembly has scant knowledge of the structure and management of public defined benefit plans, much less the contractual nature of public pension obligations.  (My guess is that only a handful of Colorado state legislators can tell you the difference between an “ad hoc” and an “automatic” pension COLA.  You can rest assured that Colorado public unions and Colorado PERA failed to educate legislators in this regard during their political, lobbying and legal campaigns to take retiree contracted benefits.)

The General Assembly’s breach of fully-vested pension contracts cannot be justified based on an economic argument.  In the last ten years the General Assembly has ignored approximately $3.5 billion in “annual required contributions” to the PERA pension.  (Again, perhaps half a dozen members of the Legislature know what an “annual required contribution” is.)  Colorado PERA’s funded ratio at the time of the contract breach was in the middle of the pack of U.S. public pension funds.  In the 1970s, Colorado PERA’s funded ratio was as low as 54 percent and yet pension contracts were honored.  Colorado PERA has told us in writing: “PERA’S funded level was below 60 percent in 1970, and there was not a perceived crisis in PERA’s financial health.”  Two weeks ago, the Colorado General Assembly provided conclusive evidence that it does not believe that the State of Colorado is in the midst of a financial emergency when it granted $100 million in discretionary tax relief.  In any case, members of public defined benefit plans do not bear “market risk.”

Secunda:

“In short, most courts to have considered Contracts Clause challenges regarding pension obligations have concluded that even rather minor impairments of employee contract rights involving compensation are legally unjustified.”

“The Contract Clause ‘is especially vigilant when a state takes liberties with its own obligations.'”

“When a State itself enters into a contract, it cannot simply walk away from its financial obligations.  In almost every case, the Court has held a governmental unit to its contractual obligations when it enters financial or other markets.”

Secunda concludes:

“Because of the lack of legal uniformity in public pension regulation from one state to the next, the only possible way to determine whether state curtailment of public employee pension rights will be constitutional is by undertaking an in-depth legal analysis of the applicable pension laws, regulations, ordinances, court opinions, and prior settlements.”

(As noted above, the Colorado General Assembly did not conduct this analysis prior to adopting SB 10-001.  The Colorado Attorney General conducted an analysis that was ignored by the General Assembly.  The matter deserves a thorough vetting by the Colorado judicial system.)