Better in their words…

Well, well, well. What do you know?
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WSJ 12/8/2017

Republican plans to slash the state-andlocal tax deduction are already reaping benefits in high-tax states. Democrats in the Northeast say they’re having second thoughts about raising taxes. And lo and behold, California Gov. Jerry Brown is arguing that public pensions aren’t ironclad.

Last month the Governor intervened in a state Supreme Court case regarding the constitutionality of his modest 2012 pension reforms. Several unions have challenged the reform’s limitations on pension “spiking,” including a provision that prevents workers from buying pension credit—known as “airtime”— at up to 40% below cost for years they haven’t worked. The perk, which Democrats granted unions in 2003, has allowed workers to retire early with handsome pensions.

Unions claim that workers are entitled to keep buying airtime because the U.S. Constitution forbids states from impairing contracts. They also point to a California Supreme Court ruling half a century ago holding that pensions once vested cannot be modified unless workers are given a comparable, offsetting benefit.

But two state appellate courts have recently upheld the reform’s limitations and cast doubt on this radical interpretation of contract law. The state’s First District Court of Appeal held last August that “short of actual abolition, a radical reduction of benefits, or a fiscally unjustifiable increase in employee contributions,” public worker pensions may be modified.

Another panel ruled last December that “while plaintiffs may believe they have been disadvantaged by these amendments, the [2012] law is quite clear that they are entitled only to a ‘reasonable’ pension, not one providing fixed or definite benefits immune from modification.” In other words, benefits for current workers may be trimmed.

Gov. Brown barged into the debate with a 56page brief. His usurpation of the state Attorney General Xavier Becerra, whose job is to defend state laws in court, is notable. Since Mr. Becerra is up for re-election next year, he may have faced pressure from unions to deliver a less than vigorous defense. “Treating laws as contracts creates knotty constitutional problem,” Mr. Brown’s brief notes, since “policies are ‘inherently subject to revision and repeal’ and one Legislature ‘may not bind future Legislatures.’ Yet finding that a law creates a contractual commitment does just that.” What’s more, “even a law substantially impairing a contract will generally stand if it was reasonable and necessary to serve an important public purpose,” in which case offering a comparative advantage is not necessary.

“The Union’s attempt to radically expand the scope of the vested rights doctrine should be rejected,” he asserts, since such a rule “would introduce an inflexible hardening of the traditional formula for public employee pension modifications,’ rendering pension systems incapable of adapting to changed fiscal or factual circumstances.”

Mr. Brown’s argument is particularly noteworthy because unions in other states have cited the “California Rule” that says pensions can’t be modified under any circumstance unless workers are offered a comparable benefit in exchange. This would make it difficult to realize substantial savings from reform.

Republicans in high-tax states say that abolishing the state-and-local tax deduction is unfair since lawmakers are legally barred from reducing government pensions and thus have no choice but to raise taxes to pay for them. But nearly every state court faced with the issue has upheld modifications.

The real problem is political, not legal. Democrats don’t want to renege on promises to their union friends and financiers. Mr. Brown isn’t running for re-election, so he may feel liberated. But perhaps other Democrats will be more motivated if their wealthy denizens raise a ruckus and leave their states.