The state Supreme Court will review and possibly overturn San Diego’s five-year-old aggressive pension cutbacks, potentially forcing the city to spend millions creating retroactive pensions for more than 3,000 workers hired since 2012.
The court voted unanimously on Wednesday to review an April ruling by the Fourth District Court of Appeal that had vindicated the city and its pension cuts.
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The case concerns whether Mayor Jerry Sanders and other city officials illegally put Proposition B, the city’s pension cutback measure, on the 2012 ballot without conferring with labor groups.
The measure replaced guaranteed pensions with 401(k)-style retirement plans for all newly-hired city employees except police officers, making San Diego the only jurisdiction in California not to offer traditional pensions to new employees.
Estimates of how much it would cost the city to reverse Proposition B have ranged from $100 million to less than $20 million, but even the people making such guesses have always qualified them based on a wide number of variables.
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It’s rare for the state Supreme Court to issue a notice of review, which means it disagrees with at least part of the appellate court ruling that vindicated the city.
If no review had been granted, which happens in more than 95 percent of cases where a review is requested, April’s appellate ruling would have become a published precedent throughout California.
It won’t be clear precisely which issues in the case the court is concerned about until the court’s weekly “pending issues summary” is published on Friday.
April’s appellate ruling overturned a 2015 ruling by the state’s Public Employment Relations Board against the city’s pension cutbacks, so the scope of that board’s power could be an issue the court wants to review.
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An attorney for the city’s largest labor union hailed the Supreme Court’s decision to review the case.
“Review is granted, and there is no way to interpret that except as good news for the people we represent who are adversely impacted by Prop. B,” said the attorney, Ann Smith. “Did they agree with all the arguments that I made or PERB made, I don’t know.”
Smith said Thursday that the court doesn’t choose to review cases if it wants to uphold them.
“If they thought the Fourth District Court of Appeal just got it right, then all they would have had to do was deny review and that would be the law of California,” she said.
A spokesman for City Attorney Mara Elliott said the decision isn’t a shock.
“It is understandable that the Supreme Court would want to review a case where an appellate court and a state agency have such different views of the law, particularly in a matter of statewide significance,” said the spokesman, Gerry Braun.
Arguments in the case won’t be heard until at least 2018, and Braun said Elliott’s staff doesn’t expect them to be heard until sometime in 2019.
The city’s labor unions filed a petition for Supreme Court review in May, saying April’s appellate ruling threatens to disrupt labor relations across California by creating confusion about when management must negotiate with labor.
The appeals court said city officials don’t have to confer with labor groups about ballot measures if such measures are placed on the ballot by a citizen’s initiative, such as Proposition B.
The Supreme Court might be concerned with that part of the appellate court’s ruling.
The Public Employment Relations Board also filed a petition for review raising similar issues.
Both petitions say the appellate ruling threatens 50 years of relative labor peace in California that they attribute to the Meyers-Milias-Brown Act, a set of state laws stipulating when labor negotiations are necessary.
PERB’s authority to enforce the state’s eight labor relations laws might also be something the Supreme Court considers an issue worthy of review.
A third petition for review filed in the case is of less importance to the Supreme Court, according to its notice of review.
The petition, filed by the initial proponents of Proposition B, seeks review of April’s appellate ruled based on the inability of the proponents to collect attorney’s fees in the case.
Because PERB served as the lower court in this case instead of a local Superior Court, there was no opportunity for attorney’s fees to be decided or even discussed.
The Supreme Court’s notice this week said that petition is part of the review, but also said the court won’t accept briefs on that issue of hear oral arguments on it.
Smith said it’s possible the court is deferring that issue until after it decides whether to overturn the appellate ruling, because overturning the appellate ruling would nullify the claim to attorney’s fees of the Proposition B proponents.
The court’s notice of review also stipulates that it won’t “de-publish” the appellate court ruling.
Smith said that’s good news. In her petition for review, she urged the court not to de-publish the ruling without also overturning it.
The court sometimes takes this route with dubious rulings to prevent them from becoming legal precedents, while also avoiding a lengthy review of the individual case.
While the court could choose a variety of remedies, overturning the case would likely force San Diego to create retroactive pensions for more than 3,000 workers hired since July 2012.
City officials have said that would not only be costly, but quite complicated and cumbersome.
An analysis by the city’s actuarial firm last year said it would cost $20.1 million to retroactively create pensions on Dec. 31, 2015 for 1,635 employees hired since July 20, 2012.
But those costs would be significantly higher now because the number of employees hired without pensions has roughly doubled since then.
A key to the city’s potential cost would be whether those employees would have to split the city’s costs of retroactively creating pensions for them, and whether they could do that with money in 401(k)-style retirement plans the city created in lieu of pensions.
Other variables include whether the city would be forced to pay penalties and interest and how large those amounts would be, and what the city might owe in attorney’s fees to the labor unions that filed the suit challenging the pension cutbacks.
Creating retroactive pensions might also cost the city long-term. The city’s unfunded pension debt, now estimated at $2.6 billion, would have to be re-evaluated to include more than 3,000 employees newly eligible for pensions.
Smith said it’s important to note that the lion’s share of savings from Proposition B would not be affected by the Supreme Court overturning the appellate court’s ruling, because those savings came from a five-year pay freeze, not the pension cutbacks.
“It would be an over dramatization to say the undoing of Prop. B is going to be financial Armageddon for the city,” she said.
Smith also said some are overestimating the relative level of complexity of creating retroactive pensions.
“There’s no question there are complications, but it would be wrong to say this is the first complicated scenario that comes out of litigation,” she said, adding that the city sought this course by refusing to negotiate. “The city decided to get on this horse and ride it no matter what anybody said. So the consequences will be what they will be.”
Briefs in the case must be filed within 30 days of the Supreme Court’s notice of review.
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